June 24, 2015
Financially, many home owners find the first year of their mortgage to be the most difficult. But with a little planning, you can make the transition to home ownership a lot easier.
By keeping these tips in mind, you can make the first year of your mortgage less stressful.
1. Set your budget
Know what you can afford before you start looking for a property. When drafting your budget, consider how much you can afford to spend each week on mortgage repayments and regular bills. Always include purchase costs and ongoing expenses into your budget, as these add up very quickly.
The costs of purchasing a property:
- Loan deposit
- Home loan application fees
- Stamp duty
- Solicitor fees
- Building and pest inspections
- Moving costs and furnishings
- Lenders mortgage insurance
Ongoing home ownership expenses:
- Mortgage repayments
- Council rates
- Home and contents insurance
- Income protection
- Property maintenance
- Body corporate fees (for apartment owners)
When you tally up all of these expenses, the mortgage you thought you could afford may become slightly out of your reach. To ensure you aren’t biting off more than you can chew, calculate your figures and trial living off this budget for a few weeks. If you can still live comfortably, that’s great. If you can’t, you may need to consider ways to ease the financial stress. This may mean purchasing a cheaper property.
As a general rule of thumb, I recommend that buyers spend no more than 30% of their household income on home loan repayments.
2. Choose the right loan
It is important to remember that you don’t owe your bank any loyalty – this simply rewards the bank, not you. The home loan market is extremely competitive and there are some great products available to first home buyers.
Compare your bank’s mortgage offerings with other lenders, to make sure you are getting a loan that suits your needs. If you are unsure what loan is right for you and what features you need, seek expert financial advice.
3. Prepare for the unexpected
You never know what is around the corner. But regardless of what is happening in your life, your mortgage repayments will still need to be met.
To ensure you can still make your repayments if interest rates rise, you find yourself unable to work or in financial difficulty, put the appropriate measures in place early on in your mortgage.
The easiest way to do this is to have savings. Ideally, once you have paid your regular expenses, you should be able to put away some money at the end of each week or fortnight. This will give you a buffer should interest rates rise or you encounter other unexpected expenses.
When deciding where to put your savings, consider offset or redraw facilities. By putting money into either of these, you’ll reduce the interest payable on your loan until you need the funds.
In the event that you are sick or injured and unable to work, income protection insurance will provide you with funds to cover expenses. This will give you peace of mind and can save you significant financial stress if you are unable to work for an extended period of time.
4. Cut up the credit card
If you have a tendency to put sizable purchases on your credit card, cut it up and switch to a debit card. This type of spending may be manageable when you are largely debt free, but you don’t want the burden of credit card debt on top of your mortgage.
With a debit card, you can only spend what money you have in the bank.
Purchasing your first home is incredibly exciting. By putting a plan into place before you take out a home loan, you can worry less about your finances and more about the fun things, like when to host the housewarming party.
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Your Garden City Mortgage Broker, Brisbane