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Getting the Right Finance for Your Property

By: Finance Editor – Eleanor Crosby

No matter if you are a first home buyer, a seasoned investor, or looking to downsize, getting the right finance for your property is a must. Easier said than done sometimes.

There are so many options available today some of which can save you thousands of dollars over the life of the mortgage. But it also means so many potential traps to work around as well. Let’s have a look at some of the things you need to consider.

Fixed versus Variable?

I get asked this question a lot and the answer is: ‘It depends on what your priorities are.’ I can tell you that a fixed rate is not a way to beat the market and pay less interest. That can go either way dependent upon the local and global economy.
 
Ultimately a fixed rate allows you to understand where your payments are for a chosen period of time. Bringing peace of mind that what you can afford today will not change due to interest rate fluctuations. Once you commit to one you need to keep it as the penalties can be very expensive.
 
They can be good if you have additional debt you are paying off over the short to medium term, if you have kids at home and intend to return to work in the near future or if you know your income is likely to increase. You can align the fixed rate with these events.
 
If you are concerned by the impact multiple interest rate rises might have on your ability to afford your repayments and maintain your lifestyle you should investigate a fixed rate.
 
Pro’s:
  • Provides stability in payment for a defined period
  • Rate reverts to the variable rate when the fixed rate ends, whatever that is
  • The facility must be kept for the fixed rate period or significant financial penalty could apply
  • Extra repayments are limited
  • For people who want peace of mind that payments won’t increase during the fixed rate period
 
Con’s:
  • Provides flexibility with extra repayments and redraw
  • Payments will go up and down with interest rate fluctuations
  • Minimal financial penalty for early repayment
  • For people who are not concerned by rate rises that require flexibility

A Package versus a Basic Product

A basic product provides you with less features at a lower rate of interest. A package on the other hand will provide you with an offset account and a linked credit card and potentially some other discounts on ancillary products such as for example insurances.
 
Today the basic products are not always cheaper. At the moment lenders provide discounts based on the size of your loan and it is possible therefore that if your loan is large enough, you could get all of the bells and whistles for the cost of a basic product.

Offset or Only Redraw?

This one depends on how much debt you have, and how much you have or plan to have in the offset account and a little bit about your discipline.
 
An offset makes it easier for you to transact with these savings which may or may not be a good thing.
 
If you are paying a higher rate of interest for the offset facility then you need to have enough money in the account to make it worth the extra interest payment.
 

For Example

$249,000 mortgage means a package which includes an offset account costs 4.25% and the basic with a redraw facility costs 4.00%. The extra interest is $622.50 per year. To save that money you would need to have around $14,500 in the offset at all times to break even.

Warning: This content is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to whether this scheme is appropriate for you.

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