John Comino, Lending Specialist at The Home Guide
We chat with Lending Specialist, John Comino in order to answer all of your questions about what exactly the right home loan means and why it’s important as well as whether it’s a good idea to wait or start investing in property now.
mrkts: “Often, we hear advice about finding the right home loan for your circumstances, can you give us an example of what exactly that means and how you have helped a client do this?”
JC: “Generally, a first-home buyer won’t have a huge amount of savings, so they may not need other features of a home loan such as an offset account or the ability to have splits. All of these sorts of extras form what is called a package, and you might end up paying a big annual fee just to have these features that you are not using. Often, what we would recommend to a first-time buyer is essentially a basic home loan, but what that means can change widely from bank-to-bank. Which is why I recommend highly that people talk to a professional, as it can be hard to compare apples to apples.
In terms of what that might mean for an investor or experienced home buyer, they usually will have more cash lying around which means they will want an offset account or some of those additional features. It is actually a situation I am helping someone with at the moment, an investor that doesn’t want any of his loans held by the same bank. For security reasons he wants them distributed across, so I am finding him different banks that will still offer him the features that he wants but with no package fee.
A lot of it comes around the features and the fees, and obviously the rate as well. But, that is regardless as no matter what you do you are always going to try and find the best rate. There are definitely different rates for different classes of people. For example: if you are an investor you will have to pay investment rates or if you are an owner-occupier you pay owner-occupier rates, but inside of that, if you have a minimum 20% deposit you can get a better rate.”
mrkts: “What are your thoughts on the current rates and what advice would you give those looking to invest in property at the moment? Essentially, should people wait or buy now?”
JC: “This is a really common question that I talk to my clients a lot about. Basically, no one has a crystal ball. Anyone that says that they think they know what the rates are going to do are lying. No one really knows what rates are going to do. Historically – pretty much since the invention of the Bretton Woods system, which is the current financial system that we use today – rates have always gone down. That does not necessarily mean that they will always go down, but historically if you look at them over the past 30 or so years, rates have always come down.
What I find a lot of people get caught up in, is thinking that they are better off waiting until the rates come down again or thinking that the rates are on the up so they should just wait and keep renting until they can afford it. Let’s talk about those two classes of people:
People who are currently renting and looking to get into the market, and
People who are already in the market and are looking to buy an investment property.
With the first class of people, the answer to them, in my opinion, is always to get into property as soon as you can. This is because when you rent for 10 years, you have nothing to show for it (assuming you don’t have any other property or investments). Most people renting, are living pay check to pay check thinking ‘I won’t do it now’. They should always get in the market as soon as they can because just by living in that property they are going to pay down their loan. Depending on the loan, somewhere between $7,000 to $20,000 a year will be paid off just by purely owner-occupying. A lot of the time, for those people that are renting, you can find a property with very similar if not the same repayments as what you are paying on rent. Obviously, this will depend on what you are paying and where you are looking, etc. Renters should just be thinking, ‘how do I get in?’.
Your other class of people, an investor or experienced home buyer, they are already building their wealth and already have their baseline. These people need to be thinking about opportunity costs, so, “what else can I do with that money that can put me into a better position?”. My answer to them is: use your money wisely and take advantage of the parts of the system that works in your favour, such as taxation benefits. This is a big one [in Australia] if you do ever make a loss on a property – such as if it is negatively geared – you can use that to offset the tax. “
mrkts: “OK, the time is now, but what advice would you give to these potential first-time home buyers looking to take that first step and invest?”
JC: “Talk to a mortgage broker. Honestly, people call me when they are a year out and I tell them it is the best thing that they have done because it makes that whole thing a lot easier. I have spoken to people who have wanted to buy that week and that process gets harder and harder the less time they have to work with it. Having said that, obviously if you are not even using a bank and all you want to do is purchase something outright, then of course, you don’t need to talk to a mortgage broker. But, most people aren’t in this situation. Mortgage brokers have been handling property for a long time, so they are a good source to talk to about a bunch of things.
Also, talk to a solicitor or a conveyancer, they will explain the legal process. The legal process will vary between state and date, so if you are in Queensland or New South Wales the process will vary drastically. That is definitely something a buyer needs to be aware of before they go around putting offers on places. Especially as – between these two states – that process of putting an offer on is very different. Any good mortgage broker can also give you general advice about the difference based on experience, but it is always good to seek advice from industry professionals.
A lot of people use The Barefoot Investor model to structure their finances. But, when it actually comes time to apply for a loan, you will have to provide a lot more information to the bank than you would otherwise be required. Simply because – rather than the norm of just a savings and transactional account – with Barefoot Investor, you will have about 50 accounts. It is just stuff like this that makes getting professional advice so essential. “