I'm 24 and I Am Pretty New to Home Loan Financing. Any Advice Appreciatated

shapebuster on 06/03/2021 - 11:26

Hi all,

I just placed my first deposit on my next home. Exciting times however now I must decide on my loan structure.

CBA has offered me the following. I am taking an 80% loan of $348,000. Income is $72,000

Standard Variable - $348,000

2.63% - $1320.00 per month

Fixed 1 year @ 2.19% - $1320.00 per month

Fixed 2 & 3 years @ 2.14% - $1311.00 per month

Fixed 4 years @ 1.99% - $1285.00

Fixed 5 years @ 2.99%

I'm not sure what the best strategy is. I've just started reading up about the cashback deals being offered and that sounds like a good strategy. Obviously 1.99% 4 years is pretty damn good but the economy is still in uncertain times. Maybe it's best to fix for 2 years and see how rates are then? Personally I am not overly interested in an offset account as I have a 3% westpac lifesaver account. I would also be more inclined to invest in equities now that i've locked down a safer asset that will now account for the majority of my net worth.

Any advice appreciated

Cheers!

Financial Home Loan

Comments

  • oscargamer on 06/03/2021 - 11:32
    +1

    Variable. Then you can move whenever, wherever without penalty. Fixed loans usually have considerable break fees.

    I churn mortgages every 13 months. Each time to a new provider with $3-$4k cashback.

    • shapebuster on 06/03/2021 - 11:33

      Does the amount of cashback depend on the size of your loan? Eg with my small 350k loan could i still get cashback of 3-4k ?

      • shapebuster on 06/03/2021 - 11:44
        -1

        Nope

      • oscargamer on 06/03/2021 - 12:20

        Our mort is about $350k as well

        We got $4k in Oct last year to switch and there's always cashback offers of around $2-4k

        Also - everytime we switch provider, we take a loan term of one year less than we were on. You don't feel the additional cost, but it's a straight year off the loan…. YMMV

        • Gelato on 07/03/2021 - 21:16

          Assuming cashback for refinance is $4k, after all bank fees & govt charges, what’s the net benefit?

  • [Deactivated] on 06/03/2021 - 11:36

    First question is do you want to pay off extra and early?

  • brokenglish on 06/03/2021 - 11:36

    Is your savings less than $30k? If you know what you’re doing then it’s fine.

    Spend&Save bonus interest applies on balances up to $30,000 in your Westpac Life savings account.

    • shapebuster on 06/03/2021 - 11:43

      Yes, all my money is going on the property. So i'll be starting from scratch

      • oscargamer on 06/03/2021 - 12:29
        +3

        Suggest you get an offset loan.

        Put salary into offset.

        Pay for all bills on Credit card.

        Pay off credit card in full every month.

        • shapebuster on 06/03/2021 - 12:44

          So go variable?

          • oscargamer on 06/03/2021 - 12:47
            -6

            @shapebuster: Wow - did you even read the very first reply to your question ?

            • shapebuster on 06/03/2021 - 12:49
              +1

              @oscargamer: @oscargamer Some fixed loans have offset accounts too?

              • oscargamer on 06/03/2021 - 12:54
                -5

                @shapebuster: No………….the very first word in the very first reply …….

                • shapebuster on 06/03/2021 - 13:01

                  @oscargamer: I see, my bad

                  • esosite on 06/03/2021 - 14:23
                    +1

                    @shapebuster: You can do 2 loans (1 fixed, 1 variable) the idea is the amount variable is how much you expect to be able to save and put into your offset account, which allows that variability.

                    For example $350k loan. Fix $250k, variable $100k. that allows offset against the $100k and benefit of low rate for $250k

                    • gmail92 on 06/03/2021 - 14:44

                      @esosite: there is fixed rate with offsets as well; see below.

  • Pecan on 06/03/2021 - 11:38
    +3

    See a broker, they usually can find better deals and will present a number of options to you from multiple lenders. CBA traditionally aren’t competitive, from my experience.

    • SlickMick on 07/03/2021 - 17:05

      Shop the online lenders. They don't deal with brokers, so brokers invariably can't get you the best deal.

      Just some cautions with offset accounts:
      * If not a bank lender, may not be under the gov guarantee
      * If you aren't a disciplined saver, you will never pay your loan off

      I usually use homestar and loans.com.au, they tend to compete for cheapest, best featured loans available.

  • spal on 06/03/2021 - 11:42
    +2

    Cashback to the retail customers is a recent phenomenon. It has become more prevalent only after the market cooled dramatically after APRA enforcing stricter lending policies. Previously RBA wasn’t dropping the rates for the fear of housing affordability issues. Now again sharp rises in prices has bought affordability on the radar. Who knows RBA might move sooner than previously expected. I would definitely fix for 4 years at 1.99%. Rates can’t go down much further, unless the market is in a tailspin. Which is unlikely to happen as large part of Australian wealth is held as residential property. Government taxes rely on it. Government will intervene like we saw with the home building grants and the duty concessions. There is a lot riding, it is a balancing act.

  • hmac on 06/03/2021 - 12:03
    +2

    Imagine buying a house for 348k. If only Sydney was that affordable

    • shapebuster on 06/03/2021 - 12:49
      +1

      2 bed unit and the 80% loan is 348k. Purchase price 435k. Still a great price

      • hmac on 06/03/2021 - 15:08

        Never gonna get a house that cheap in a decent area in sydney

        • toristo on 06/03/2021 - 16:56
          +1

          …or even a scummy area….

        • Jugganautx on 08/03/2021 - 13:04

          Don't live in sydney.

  • SnoozeAndLose on 06/03/2021 - 12:08

    Have you factor in stamp duty and other bank/legal cost?

    $70k income buying $348k house is comfortably affordable.

    • shapebuster on 06/03/2021 - 12:44

      No stamp duty due to first home buyer

      • SnoozeAndLose on 06/03/2021 - 14:11

        ANZ is doing 2.04%fixes 3 years

  • SBOB on 06/03/2021 - 12:22
    +1

    Variable would be my pick. Rates likely aren't moving in the near future and you can work hard to smash that loan balance down in the early years without limit.

    Though I'd likely get a loan from a smaller cheaper lender than CBA and be even further in front.

  • gmail92 on 06/03/2021 - 13:23
    +1

    If you have been to university in Australia, you are eligible for unibank which offers a fixed rate with a 100% offset at comparative rates, which could be worth considering.

    • Colombian on 06/03/2021 - 15:05

      Not very good rates over there I'm afraid.

      • gmail92 on 06/03/2021 - 18:35

        ~1.95% fixed rate, whats not good about that?

        • Colombian on 06/03/2021 - 19:46
          -1

          That it is for 4 years. Too long

          • shapebuster on 06/03/2021 - 20:08

            @Colombian: Why is it too long? Genuinely curious, pretty new to all this.

            • gmail92 on 06/03/2021 - 22:00

              @shapebuster: Its around the industry low rate WITH an offset. Happy to be proven otherwise on 'a better deal'

  • TheBird on 06/03/2021 - 14:44

    Standard Variable - $348,000
    2.63% - $1320.00 per month
    Fixed 1 year @ 2.19% - $1320.00 per month
    Fixed 2 & 3 years @ 2.14% - $1311.00 per month
    Fixed 4 years @ 1.99% - $1285.00

    If I'm reading this right, your choice is between variable 2.63% or fixed 1.99%.

    Assuming you've done shopping around and found that 2.63% is the best you can get. Since interest rates are highly unlikely to go down, most are predicting they'll rise 2024 where others are expecting it to happen much earlier to counter the current real estate price rises.

    If it goes up, it'll cost you more as variable. Not taking into consideration what oscargamer was mentioning about the kickbacks. At that point, you'll need a crystal ball to determine the best course of action (what will they offer in the future and what will the interest rates be offered).

    I'd lean towards the fixed 4 years, but personally I don't like to jump ship all the time.

    • shapebuster on 06/03/2021 - 15:31
      +2

      Maybe i'll do 80 fix 20 variable

      • TheBird on 06/03/2021 - 22:39

        What's got you spooked enough to make you want to hedge your bets?

        • gmail92 on 06/03/2021 - 22:47
          +1

          He doesn't know what he is doing? Haha

          • TheBird on 06/03/2021 - 22:51

            @gmail92: That's a possible. He might also have some legitimate undisclosed reason too.

            • shapebuster on 06/03/2021 - 23:33

              @TheBird: I only think I am capable of saving 20% of my loan in the next 4 years to put into an offset.

              • TheBird on 07/03/2021 - 12:37

                @shapebuster: You can't offset with fixed?

                • shapebuster on 07/03/2021 - 12:42

                  @TheBird: The 20% can be offset?

                  • TheBird on 07/03/2021 - 12:43

                    @shapebuster: Why are you asking me? It would be reasonable to assume since you're the one getting the loan, you'd have taken a look at the terms of what's on offer.

                    • gmail92 on 07/03/2021 - 13:20

                      @TheBird: Certain banks such as Unibank offer fixed rate loans with offset accounts. Not sure what you are trying to say. Although it seems like the OP is also unsure of anything.

  • Transient on 06/03/2021 - 15:35
    +2

    I would take an each way bet and fix a portion at 1.99% (good rate) say 60-70%, rest variable, with or without offset (some banks charge an annual fee for an offset facility of several hundred). Economy starting to improve. Inflation is on the rise - so are government bond yields. US and Au governments might need to increase rates to stop inflation rising too high. Variable currently 2.63%. Interest rates already at all time lows. Would have to drop > 0.64% to get close to 1.99%, as not all banks pass on a full rate cut. So if rates don't change or rise, pay less interest than if all variable. If rates drop, you get upside from the variable part. However, this is just my view and there are other views.

    Mind you, I don't tend to swap lenders so have stayed with the same lender for more than 4 years, so 4 years fixed would suit me. If you want to refinance with another lender, you're likely to have break fees with the fixed loan. Also, with fixed, there is a limit on how much extra funds you can pump into the fixed facility. If I receive a bonus or windfall, I would compare the after tax interest earned from depositing it in the 3% account versus the interest saved from dropping it into the variable. Also with the variable, additional funds are generally available for redraw.

    So fixed tends to be more restrictive than variable, so depends on what you are likely to do in the next four years.

  • morse on 06/03/2021 - 16:31
    +1

    Was scanning forums topics, saw the first 6 words and thought this was going be a post about dating or similar.

  • foxmulder on 06/03/2021 - 18:25

    Pay the bank fortnightly rather than monthly. And set aside $1000 again each month you will see the loan decreases faster. Read barefoot book.

  • Sweet3st on 06/03/2021 - 21:26

    Out of interest what are you looking at in break fees for $250,000, say 2 years left on term? Haven’t been able to find much info on break fees.

  • DoctorCalculon on 06/03/2021 - 22:44

    Have you looked at UBank rates?

  • miwahni on 06/03/2021 - 23:18
    +1

    AFR this weekend has an article with headline "Now is the time to be fixing your home loan" (not direct quote). I guess the big question is -what are your plans? And if interest rates should rise say 1% would the repayments still be affordable? Look at your personal circumstances and ignore all the "noise" around rates. If you're comfortable with your choice, and can afford a rate rise or three, then by all means go variable. But if a couple of rate rises would knock you out of the ball park, then consider the fixed, or a split loan with the majority fixed, just so you know you can afford your repayments if rates should increase. Cashback is all well and good on subsequent refinances, but consider whether you're planning on starting a family and would even be in the position to refinance in the next couple of years.

    Without knowing the details of your personal situation it's impossible to give any clear guidance, but just consider the above when you're making your decision.

    I used to love showing first home buyers what their repayments would look like if rates returned to around 1989 levels (unlikely but hey, anything could happen.). Ah the look on their faces when their loan was suddenly calculated at 17.25%pa….

    • SBOB on 07/03/2021 - 07:01
      +1

      rates returned to around 1989 levels

      With matching house prices of the same era, if happily take that ;)

      • miwahni on 16/03/2021 - 23:28

        Good point!

  • STRAPIFY Watch Strap on 07/03/2021 - 07:49
    +1

    Forecast how much savings you can expect to save over your loan term so that you know roughly how much to put in a variable loan which has an offset account.

    Personally, I wouldn't fix for 4 years because you'd be locked into that property to 4 years which would mean a huge break fee if you decide to sell earlier, or refinance

    For me, I fixed for 1 year with anz because they offered an offset with their 1 year fixed rate plus offered me 4k cashback and I got a broker cashback. After 1 year, I plan to do the same and refinance and take advantage of the cashback offers again. Even if the rates increase, the cashback would offset most of the higher interest rate.

    If you have an offset account, don't bother making fortnightly payments. It makes virtually no difference unless you are bad at managing your own money.

    Also, you mentioned you have a 3% savings account, savings accounts are taxed at your marginal tax rates. Offset account notional interest is effectively tax free so you would likely be getting more from your offset account.

  • eddieboy2 on 07/03/2021 - 11:05

    Any bank will only offer your their home loan deals, not necessarily their best deal. Use a mortgage broker or two to see if a better deal is around with another institution. Brokers services are usually cost-free to use, I think, as they are paid by the lender. I agree with Transient and would take an each way bet, with a portion fixed and the rest variable……maybe 50/50. Break fees are usually high for fixed rate loans so I would suggest only fix for maybe1 year at the start. At some point you might find yourself living next to the neighbours from Hell, or bikies, and want to move house quickly. Four years is too long to fix any loan.

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