Capital gain is the difference between the amount you bought an asset for, and the amount you gained’ when you later sold it (minus the selling costs). Capital gains tax itself is a levy that you must pay on that capital gain the year that you sell the asset. There are multiple methods to calculate capital gains tax, but the first step is always to work out your gain.
Home equity is the difference between what your home is worth and the amount you owe on your mortgage. A home equity loan allows you to access funds by borrowing against this balance through a lender. Whether or not you qualify, and the amount you can borrow depends on your circumstances.
Loan-to-value ratio (LVR) is the percentage of the loan you take out to buy your house, compared to the value of the house itself. It can be calculated by dividing your home loan amount by the value of the property (then multiple this number by 100 for the percentage). For example (270,000 / 300,000) x 100 = 90% LVR.
Salary sacrificing is a way to reduce the amount of tax you pay by removing goods and services you would normally pay for from your pre-tax salary. Many everyday expenses can be salary sacrificed, including your mortgage. To be eligible, among other criteria you will need to make sure that your employer offers salary sacrifice and that your mortgage is for an owner-occupied home.
Negative gearing refers to the investment strategy where you take advantage of having a negatively geared investment property (one where the rental return is less than what you are paying to own the property) by offsetting the loss against your income and reducing your taxable income. More information on negative gearing can be found here.
A bridging loan is designed to ‘bridge’ the gap when you’re trying to secure a new mortgage for a new property but haven’t yet sold your existing property. This loan allows you to buy your new place without waiting for the old one to sell. They are particularly helpful in locations where properties can stay on the market for a while.
Lenders Mortgage Insurance (LMI) is a form of insurance that is paid by the home loan owner but designed to protect the lender, just in case you default on your home loan and can no longer make your repayments. Not everyone pays for LMI, and it is usually only required if you are taking out a loan for 80% or more of the property value.
While a pensioner is a high-risk borrower for a lender, many loan options are still available – it just might take a little bit more time to find the right lender. It might also help to contact a broker to help you sort through your options.
In some circumstances, you can in fact get a home loan without a saving for a deposit. While a 10-20% deposit is the ‘norm’ with most lenders, in some cases you can get away with not having this. The main way to avoid a deposit is if you have a guarantor, in which case many lenders will let you borrow up to 105% of the property’s value.
An offset account is a savings account or an everyday account which is linked to your home loan account. It works to ‘offset’ your home loan balance daily, meaning you are only paying interest on the difference between your principal loan and the balance in your offset account.
First proposed by the Coalition at Scott Morrison’s campaign launch, and shortly after matched by Labor, the scheme proposes to help first home buyers purchase property without having to save for the full 20% deposit usually required by banks and lenders.
A credit score helps a financial institution know whether or not they should lend you money or give you credit. Your credit score is determined by looking at your credit report to determine how trustworthy you appear as a borrower. It is calculated by looking at a variety of factors including previous credit providers used, amount of credit already borrowed, unpaid or overdue loans/credit, and many other factors.
The best way to find out your borrowing capacity is to use a borrowing calculator.
According to the Australian Bureau of Statistics (ABS), the average mortgage size in Australia is $384,700 (November 2018). Depending on where you live, this may sound like a lot or very little and that’s because the state or capital city you live in has a major influence on the size of your mortgage.
According to the Renovations Roundup report from Housing Industry Association (HIA), half of all renovations in Australia are valued between $40,000 and $200,000.
Depending on the type of loan you have, you have an exit fee which is either a set flat rate or a percentage of the remaining portion of the loan. Home loans taken out after 1 July 2011 that are variable will attract a discharge fee too. You may also be subject to Lenders Mortgage Insurance.
First home buyers grant varies from state to state. Currently they range from $7,000 – to $26,000.
To make an offer on a house sold by private treaty, you’ll either submit your offer to the real estate agent or directly to the vendor. Both may ask you several questions to better understand your financial situation and needs. Buying at auction is a simple as bidding against other auction-goers on the day of the auction.
If you accrue a debt through Afterpay or Zip Pay, the IFPP reserve the right to refer the debt to debt collectors. Although not a traditional form of credit, their terms specify that they reserve the right to conduct a credit history check. And if you’ve failed to make repayments, this may well be reported to a credit reporting agency, dropping your credit score.
Investment property depreciation is claiming the reduction in the value of items in your asset over their expected life. The life expectancy of items varies from product-to-product so each property will depreciate at a different rate.
The best thing sellers can do is make sure their property is presented in its best light possible. Another critical component is good quality marketing with maximum exposure. Most sellers will also need to ensure their property is priced competitively compared to what else is available on the market.
By law, lenders must list both their advertised and comparison rates. The advertised rate is the rate the lender offers you when you apply for a loan. It’s also the rate that they use to attract your interest and is typically low, in order to entice you to find out more. The comparison rate is the advertised rate plus any fees. Thus, the comparison rate gives you an accurate indication of what you’re actually paying for your loan.
Home loan conditional approval keeps you financially grounded by helping you understand your borrowing power and what properties are within your budget. It also position you as a serious buyer in open inspections.
A guarantor home loan is a specialised mortgage secured by another party. In most cases, this is a parent or an immediate family member, such as grandparents, siblings, or adult children. By being a guarantor, this party assumes the risk should you default on the payment of the loan.
The upfront buying costs to look out for include:
You’ll also need to consider the home loan costs. These include:
Rental yield is the amount of ongoing return made from your investment property and does not include capital growth. It allows you to compare your investment properties to other properties on the market.
Liveability is a living standard measure that refers to several crucial factors such as security, substructure and the surroundings, which affect everyday living. This can include the amount of green spaces in your area, how friendly the neighbourhood is and the opportunity for recreational activity.
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