Hi Nicole,
I'd really like your help. I'm 32, single and want to take out my first home loan soon, to buy a house in Brisbane. I've managed to save a 20 per cent deposit, like you recommend, by staying living with my parents. I'm worried about bank rate hikes though and don't know whether I should fix so I know what my mortgage repayments will be each month. I can afford a house up to $550,000.
Sam, Ferny Grove
Sam, you don't say whether this house is for you to live in or rent out - you sound comfy (and savvy!). It's investors who are being seriously squeezed by lenders' maverick rate moves, ostensibly to slow loan growth in that sector.
I asked loan comparison website mozo.com.au to analyse the antics and since March, 58 per cent of lenders have hiked variable rates "out of cycle" by an average of:
- 0.11 percentage points for principal and interest owner occupier loans
- 0.13 for interest-only owner occupier loans
- 0.20 for P&I investor loans and
- 0.22 for interest-only loans.
But fixed rates have been lifted along with this, for example over three years by the smallest average increase of 0.14 points for P&I owner occupiers to the largest of 0.17 for interest-only investors.
Vital info for you: when you take out a fixed rate you are betting against a bank that you know better than them what's going to happen with rates - they are experts. You may not be able to pay extra off your loan, or this may be capped, which could otherwise produce enormous interest savings. And you are locked in for the period - yes, exit penalties if you unexpectedly want to leave early.
For this reason my advice is never fix more than half??? but with banks raising rates independent of the Reserve Bank, I can certainly see the appeal of that today. For owner occupiers, mozo says the cheapest fixed rates over three years are 3.59 per cent from Easy Street for P&I and 3.89 per cent for interest-only from IMB Bank. For investors, it's Australian Unity for both loan-types - 3.99 per cent. The corresponding variable rates are competitive.
I'm sure you know any first home buyer purchase below $550,000 in Queensland attracts duty concessions or a grant for new homes bought for less than $750,000, enhanced to $20,000 until June 30. If you had intended this to be an investment, it's worth living in it first for that reason and one more: this will also trigger an exemption from capital gains tax on sale in the next six years (at which point you can live in it once more and start the clock ticking again).
And I hope your parents are the first people you invite around for a BBQ???
Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at nicolehelps@fairfaxmedia.com.au.
