FAQs

Finding out how much you can borrow is crucial when you’re looking to buy a home. But remember, just because a bank or lender says you can borrow a certain amount, it doesn’t mean it’s the right amount for you. Your individual needs and financial situation should guide this decision.

Determining your borrowing capacity involves considering several factors, like your income and spending habits. There are two main factors that limit your borrowing capacity: your savings or deposit, and your available cash flow.

Let’s break it down with a couple of examples:

EXAMPLE 1:

Meet Jenny. She’s eyeing a $600,000 home but doesn’t have any savings or deposit. Even though she has enough income to cover loan repayments, Jenny can’t buy the property because she can’t cover the upfront costs like the deposit and stamp duty.

EXAMPLE 2:

Now, if Jenny has managed to save $200,000, that’s great! But if her income isn’t enough to cover loan repayments, she’ll still face hurdles. Despite having the upfront money, she won’t be able to keep up with ongoing repayments. Sometimes, though, a family member or equity guarantor can step in to help instead of needing genuine savings. 

SFP Financial Crows Nest is here to help you find the right balance and ensure you understand your maximum borrowing capacity and purchase power.

Stamp duty is a tax charged by the state government when purchasing a property (also known as transfer duty). The amount of tax charged can differ depending on a number of factors, including; property value, property location and available grants and/or schemes the state government offers. In Australia, first home buyers have access to several government stamp duty schemes that are specific to certain states, property types and property values. SFP Financial Crows Nest will guide you through each government scheme and see which ones might be beneficial to your specifical property goals.

Imagine this: parents helping their kids buy a home by using the equity in their own home or investment property instead of savings. It’s like giving them a leg up onto the property ladder! With a guarantor loan, first home buyers can jump into the market sooner without needing to save up the full 20% deposit.

Here’s how it works: when a guarantor uses their equity as a deposit, they’re essentially offering a slice of their own home as a guarantee to the lender. This gives the lender confidence to approve the loan. But, like any big decision, guarantor loans come with risks that need to be carefully considered by everyone involved.

While guarantor loans can be a fantastic option for young people eager to buy their first home, it’s crucial to chat with your mortgage broker and seek legal advice before diving in. It’s all about making sure everyone understands the ins and outs before making any big moves!

So, what’s LMI all about? Well, it’s a fee charged by the lender when you’re borrowing more than 80% of the property value. In other words, if you have less than a 20% deposit saved up.

Now, here’s the deal: LMI isn’t a fixed amount. It can vary depending on factors like your loan balance and the size of your deposit.

Let’s break it down with an example:

Meet Matt. He’s eyeing a $700,000 home and has managed to save up $70,000 for a deposit. That’s a 10% deposit, which is less than the usual 20%. Because of this, the lender might ask Matt to pay an LMI fee of $15,000 to cover the added risk.

The LMI fee doesn’t need to be paid for out of savings, it can be added to Matt’s loan amount, making the base loan amount $630,000, plus $15,000 for LMI, totalling $645,000.

The catch: Adding LMI to the loan bumps up your loan balance, which means you’ll end up paying more interest over time. That’s why it’s super important to chat with a pro before deciding if LMI is right for you and your situation.

With P&I, you’re chipping away at both the loan amount and the interest over time. It’s like paying off a slice of your mortgage pie with each payment.

On the flip side, Interest Only means you’re only tackling the interest portion of your loan, leaving the actual loan amount untouched. It’s like keeping your loan on hold while you manage just the interest part.

With P&I, your loan balance gradually shrinks until it’s all paid off. But with Interest Only, that loan balance stays put until you switch things up and start paying down the actual loan amount.

There’s no one-size-fits-all repayment structure! It’s all about finding what works best for you. So, let’s chat about your options and tailor your loan to fit your unique needs!

Fixed Rate Loan – Picture this: You lock in an interest rate for a specific time frame, usually between 1 to 5 years. During this period, your monthly repayments stay consistent, offering you stability and peace of mind. It’s like having a set budget for your loan, making it easier to plan your finances.

UPSIDES

• No surprises! Your interest rate remains unchanged for the entire fixed term.
• Easier budgeting. You know exactly how much to set aside each month, with no unexpected spikes.

DOWNSIDES

• Miss out on potential rate drops during the fixed term.
• Limited flexibility. Extra repayments or changing loan features may come with fees.

VARIABLE RATE LOAN

With a variable rate loan, the interest rate can shift up or down depending on market conditions and the lender’s decisions. It’s like riding the waves of the financial market.

UPSIDES

• You can catch a break if the lender lowers the rate.
• Enjoy perks like a 100% offset account and the flexibility to make extra repayments.

DOWNSIDES

• Brace yourself for rate hikes if the lender decides to bump up the interest.
• The uncertainty of fluctuating repayments.

Choosing between fixed and variable rates boils down to your personal outlook and financial goals. We’re here to help you navigate the options and find the best fit for your needs!

The below table provides examples of the deposit required to purchase a property. In most instances, if you’d like to avoid paying Lenders Mortgage Insurance (LMI), you’ll need a deposit of 20% or more of the property value.

You may be able to purchase a home with as little as a 5% deposit with the assistance of LMI.

There may be government schemes available to assist in avoiding or reducing LMI premiums so it’s best to speak with SFP Financial to discuss your options.