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When you’ve found the perfect home to purchase, or the perfect block of land to build on and it’s time to organise a home loan, your mortgage broker will start talking to you about interest rates and which home loan gives you the best rate. If you’ve never held a mortgage before, it might initially feel confusing to be talking about rates and percentages, so we’ve got a quick break down of interest rates, what they are, and how they impact your mortgage over time.
The Reserve Bank of Australia (RBA) is Australia’s central bank, and it conducts the nation’s monetary policy and issues its currency. It also sets something called the ‘cash’ interest rate, which is reviewed each month. The cash rate is the overnight money market interest rate. At the monthly review, the RBA will decide to either increase, decrease or put interest rates on hold, which in turn affects how much your mortgage repayments will be.
Credit providers are financial institutions that provide credit to individuals and businesses. Often people know these providers as the major banks, but there are credit unions who also offer competitive interest rates. Credit providers have the ability to set their own interest rates, and can increase or decrease their rates in line with the RBA’s cash rate changes. It’s worth noting that while the RBA cash rate may remain unchanged, credit providers can adjust their rate when they deem it appropriate to do so.
A variable rate means your rate will fluctuate in response to the cash rate and other changes that have been made by your credit provider. The advantage to having a mortgage with a variable rate is that the rate will often (but not always) decrease if the RBA’s cash rate decreases, which will then reduce the amount of interest you pay. Another benefit to having a variable rate is that you can make additional payments to your home loan, meaning the loan can be paid off sooner. However, remember that a variable interest rate will also increase if the cash rate increases (and can also increase even if the cash rate does not). It’s an interest rate that will change frequently throughout the life of the loan, so you should ensure your finances allow for these changes, particularly the increases.
Having a fixed rate for your mortgage means you can lock in an interest rate, often for one to five years of your home loan. This means that while the rate is locked in, your repayments won’t change during that time. You’ll be able to plan your finances accordingly because you’ll know exactly how much your repayments will be. This is beneficial during times of national or worldwide financial uncertainty or crisis, when cash rates may increase significantly; your rate will be safeguarded against these changes. On the flip side though, a fixed rate means your repayments won’t decrease if interest rates go down, so you may find yourself locked in to a fixed rate that’s much higher than the cash and variable rate. There may also be restrictions on making additional loan repayments if you have a fixed rate, and your credit provider may impose a fee for ending the fixed rate period.
This type of interest rate offers the best of both worlds. You can pay a fixed rate on part of your loan, and a variable rate on the rest. This allows you to take advantage of interest rate drops on the variable part of your mortgage, and the fixed rate partially protects you from interest rate increases. Often you can still make additional repayments to your loan, helping you pay it off faster.
If you’re ready to build or purchase a home this year, doing a little research to properly understand interest rates and how they will affect you as a property owner will help you have a clearer idea of how to plan your finances accordingly. For more information about building your own home, visit the Hotondo Homes website today.
Hotondo Homes is not a registered financial advisory and we recommend you speak to your financial advisor or mortgage broker to receive expert advice before you enter into a loan contract or real estate contract of sale.
Before building or selecting a property to invest in, it is important to determine what your investment ‘gearing’ strategy is. This is where an understanding of whether your home is positively geared (a cash-flow property strategy) or negatively geared (a capital growth property strategy) becomes significant.
For a better understanding of what these terms actually mean, we have compared the two strategies and outlined the benefits and drawbacks of each. Consider both carefully before purchasing your investment property!
Generally considered the safer, more conservative method, positive gearing occurs when the rental income on your investment property exceeds the cost of maintaining it, including loan repayments, interest, rates and maintenance fees. Positive gearing allows for short-term profit, as the extra cashflow works as an additional income stream. Positive gearing works in areas where rental demand is high (so investors can charge higher rent) and when interest rates are low.
Negative gearing occurs when the property runs at a loss – that is, the rental income is less than the costs of maintaining the home. Investors will need to use their own funds to make up the shortfall. Ideally, a negatively geared investment will grow in value over time, and the increased profit from selling it is expected to outweigh the initial financial losses. Negatively geared homes are often located near capital cities, which generally perform better and increase in value over a longer period.
Hotondo Homes have over 90 home designs, perfect for investors. Find out more at hotondo.com.au
*Hotondo Homes is not an authorised financial adviser so please seek professional advice for your investing enquiries
In simple terms, equity is the difference between what your home is worth, and how much you owe on it. For example, if your home is worth $400,000 and you still owe $250,000, your equity is $150,000.
Within five to ten years of owning a home, you will have built a sizable amount of equity. If you are looking at purchasing another property, banks will generally lend you up to 80% of a home’s value without having to use Lenders Mortgage Insurance, and you may be able to access a portion of your equity to use for the remaining deposit.
For a closer look at using equity, check out RateCity’s guide to using home equity to buy an investment property.
House and land packages are a great way to reinvest your equity and make a return by using it as a rental property.
Packages offer convenience and the homes are specifically matched to suit the land. Building a house and land package will also result in paying less stamp duty. This is because you only have to pay stamp duty on the value of the land as the home hasn’t been built yet.
Potential investors should also consider the benefits of higher quality materials and construction techniques that new homes offer, resulting in little to no maintenance costs, energy efficient technologies and warranties on the home, its fittings and appliances.
Check out all the latest house and land packages by Hotondo Homes here.
When looking to use your equity, the bank will take into account your age, income, family, cost of living and any additional debt you may have incurred. It is also wise not to use every last cent of your equity so you can give yourself a safety buffer in case of emergencies. Before you start building your property portfolio, it is best you speak to your banker or broker.
*Hotondo Homes is not an authorised financial adviser so please seek professional advice for your banking enquiries.
You may have multiple tenants over the years at varying stages of their family life, so a versatile design where a study can be turned into another bedroom or a second living room could be ideal.
When building or purchasing an investment property you’ll want to take every step possible to ensure you will get the greatest return. Factors that can impact this include:
There are more financial benefits when you build an investment property compared to buying an existing home, including fewer repairs and you’re able to claim depreciation at tax time.
Property can be less volatile when compared to shares or other types of investments.
Property is tangible – you can see exactly what you’re buying.
You are able to rent out the property to gain a second income. If it’s negatively geared you will need to pay the gap between rental income and the mortgage repayments. If it’s positively geared you will have more money in your pocket.
Capital growth – the value of the property may increase over time.
You are able to gain tax benefits for negatively geared properties, depreciation and other expenses that you might have to pay as a landlord.
What to consider
It can be expensive if the property doesn’t have a tenant, if there needs to be any repairs and paying mortgage repayments.
Mortgage repayments can be affected by interest rates, so if there are any increases you may have to pay the difference.
Negative equity – if the value of the property goes down, the property might not be worth what you owe.
Capital gains tax – if the value of the property goes up, when you sell the house you will have to pay tax on the value increase.
It’s best that you speak to a certified financial advisor prior to buying an investment property as they will be able to help establish what would be the best option for you.
The Milestone Range
The Milestone Range is filled with designs perfect for investment properties. These designs are both versatile and practical making them the ideal choice for investors.
With a wide range of designs available including single and double storey, terrace and duplex properties investors are sure to find a home that will suit their needs and help build their property portfolio. Visit hotondo.com.au to find out more to find out more about investing in property.
*Hotondo Homes is not an authorised financial advisor so please seek professional advice prior to buying an investment property.
Essentially a duplex home consists of two separate living quarters and entrances that can cater for two different households, all within one dwelling. Duplexes can be the perfect living arrangement and create substantial financial gain and investment potential.
An investors dream
Duplex homes offer an affordable way to strongly enter the property market and build up your property portfolio. They create the ability to generate two rental incomes whilst owning a single block of land.
Ultimately with a duplex you can get the most out of your land as a two for the price of one situation emerges. You can generate double the return than if you were building one home on the same sized block.
Options and flexibility
With a duplex home you are provided with different opportunities and options to suit your current stage of life. You can live in one and rent out the other, occupy both or rent out both – the choice is completely up to you.
Meet the special requirements of your family
If you have a family member that requires extra care or supervision, or a grandparent or young adult that’s not quite ready to leave the nest, then a duplex could be the answer. This enables you to be close to your loved ones whilst ensuring they can still maintain their independence. You get to preserve your privacy while still having peace of mind and security.
Hotondo Homes has a range of duplex options to consider:
The Aon 265 comes in two different configurations, the courtyard and the garage.
The Halifax is a double storey home that can be used in isolation, turned into a duplex or rearranged in a multiple townhouse development.
For more information on duplex homes, contact Hotondo Homes today at hotondo.com.au
Empty Nest: Your children have all moved out, and the once noisy halls of your home are suddenly silent. With so many rooms now empty, it may be time to capitalise on your home and downsize to a smaller model.
Money: Finances may be tight and a smaller home will generally equal a smaller mortgage. This is also true of the suburb or part of town you choose to live in. Energy bills will also become cheaper in a house that is smaller.
Travel: If you travel a lot, especially for work, you may find maintaining a larger home you are never around to enjoy pointless. Downsize your home now, save on your mortgage, and then when the time comes to settle down you can look for a larger home once more.
Maintenance: Sweeping, mopping, vacuuming and dusting a large home can be a tedious chore that many people dislike. If you don’t need the space and hate cleaning, why not downsize to a more suitable home? On top of this you have actual maintenance costs such as the yard or mechanical aspects like heating or cooling which will be significantly more in a larger home.
Family: A growing family will need more living space as children get older, which offers the perfect opportunity to upsize your home. The same goes for any grandparents who may be moving back into the family home.
The ‘Dream Home’: Your dream home will probably have some luxurious features that are often found in larger designs. If you come into some money or finally receive that job promotion, having a beautiful home may rate very highly on your list!
Investment: Purchasing a larger home could bring you a greater return for your money.
For more information on whether to upsize or downsize your home, contact Hotondo Homes here.
Whether you’re married with a family, single, looking to buy your first home or wanting to invest, the benefits of buying a house and land package should not be overlooked.
House and land packages are one of the most economical and efficient ways to gain a tangible asset and create a home you love.
Some of the benefits include affordability, convenience, new home technologies, fast construction time and the customisation of layout and design.
Location, location, location
It’s important to consider the location of your house and land package before you commence building. Whether it’s your own home or for investment purposes, the location of your house and land package is key.
Consider its proximity to schools, shops, local amenities, public transport and employment opportunities. Houses that are in close proximity to these things may get more rental return on them. Similarly, when you come to sell the house this will often be a major factor for buyers.
Shape & size
The shape and size of the block of land you choose will ultimately determine the cost and build time. Some sloping blocks require excavation and the implementation of retaining walls.
The house and lands exposure to the sun is paramount to harnessing its natural capacity to give light and offer ways to heat and cool the home.
Ensuring the home isn’t shadowed by neighbouring properties will mean that your home can take advantage of the northerly rays. This will also affect your heating and cooling bills. In order to maximise energy efficiency, ensure your living areas are facing north.
Local government regulations
Each suburb or region is under the jurisdiction of a local council. Therefore, different rules apply to different properties. Before you purchase a block of land ensure that you do your research.
Look for restrictions on certain building materials, home styles and heights, easement placements and subdivisions.
It is also worth finding out whether the property is in a bushfire prone area, a region that is susceptible to floods or inhabited by protected wildlife.
To view our range of house and land packages click here.