You have found the perfect property and your home loan is in place. It is now time to sit back and relax…well, not entirely, unless you have enough money holed up to cover the accessory costs associated with your home loan.
As a rule of thumb, you need at least 5 percent of the purchase price to cover the upfront costs required to complete your loan. Thus, for a property worth $500,000, you need an additional $25,000 (approximately) to ‘close your loan’ successfully. And, no, we are not talking about your home loan deposit or the interest you are going to pay on your home loan – what we are talking about are costs related to stamp duty, legal & conveyancing, building and mortgage and lender fees. These need to be paid in addition to the home loan deposit, which might come as a shock to some home borrowers! Here’s a peek at the common upfront costs associated with your home loan in more detail:
Stamp duty – Stamp duty is payable to the government and can run into thousands of dollars, depending upon the state in which you are buying. The stamp duty payable is directly related to the value of your property. Fortunately, some states in Australia offer concessions to first home buyers and it is worth checking your state’s website for more information. You could also use this online calculator to determine the amount of stamp duty payable on your purchase within your state.
Legal and conveyancing fees – When you are purchasing something as dear as your home, small mistakes can turn out to be quite expensive in the long run. Thus, it is recommended to have your sale, mortgage and other legal documents drawn up by a solicitor or a conveyancer who will charge you between $1,000-$2,500 (or more) depending on the state in which you are purchasing and the complexity of the paperwork. Your legal advisor would also run title searches to determine whether the seller has good title and the property is free of liens.
Mortgage and lender fees – Lenders charge you a range of fees such as application or loan establishment fee for setting up your loan. You are also charged a valuation fee as lenders employ an external valuer to assess the property you intend to purchase to determine how much they would like to lend to you.
As charges vary for different lenders, it is best to ask your lender or mortgage broker clearly about such charges as they add up to the cost of your loan.
Building inspection fees – Getting building and pest inspections done could sound like a waste of money but spending a few hundred dollars on getting a property inspected can save you thousands in the future.
A professional inspector can point out major building defects and potential issues that could be quite cumbersome as well as expensive to repair in the future. In most cases, a building inspection costs less than $1,000 – a small price to pay for a secure future.
Lenders Mortgage Insurance – If you are borrowing more than 80 percent of your property’s price, you might be required to pay Lenders Mortgage Insurance that could cost you thousands of dollars. However, it is possible to include LMI premium in your total loan amount if you don’t want to pay it upfront. It also makes sense to buy income protection insurance to cover your mortgage repayments in case you fall ill or meet with an accident.
Home buyers are also advised to take home and contents insurance to protect themselves against any damage to the building as well as the fittings and fixtures in the house.
As you can see, saving a deposit is not enough to close your home loan. In addition, you require at least 5 percent of the purchase price to take care of the above-mentioned accessory costs. While many of these costs are mandatory, there is one ongoing cost on your home loan that you can negotiate to save thousands of dollars in the long run.
Yes, we are talking about your interest rate. Thanks to the immense competition in the mortgage market, banks and credit unions are offering low home loan rates to attract home buyers. You can start fishing for a competitive deal by comparing broker pre-negotiated home loan rates on HashChing, which could be almost one percent lower than lender advertised rates. Alternately, you could fill this contact form and we’d put you in touch with a verified broker near you, to help you find the best home loan deals for your requirement.
HashChing is Australia’s first borrower-friendly mortgage marketplace that allows users to compare discounted broker-negotiated mortgage rates from over 60 lenders across Australia, online.
By Vidhu Bajaj,
HashChing Content Writer