A standard variable home loan with a major bank will still cost you about 9.3 per cent or $2500 in repayments a month on a $300,000 loan over 30 years.
But as Leanne Wilson, financial planner at Suncorp, says, the scary part is that over the 30 years you will pay just under $570,000 in interest.
The big fear is home values may drop lower than a family's mortgage, creating negative equity now common in parts of western Sydney. If you had zero deposit and borrowed using a 100 per cent loan (or more) any time after 2004, chances are you may be in such a situation already.
Buyers remain wary of the market with lending falling for the sixth consecutive month in July. The latest housing finance data from the Australian Bureau of Statistics shows a 0.2 per cent slide in owner-occupier loans to 50,279 nationally in July, the lowest since November 2004.
In Queensland, owner-occupier finance dropped 1.8 per cent or by 190 loans in July, compared with June 2008. Real estate agents are hoping first-home buyers will return after the State Government lifted the stamp duty exemption limit to $500,000 from $350,000 from September 1.
Co-ownership
The idea of co-sharing or pooling your money has the potential to be a problem, but not necessarily. PodProperty and Wizard Home Loans have designed an all-in-one solution making buying a home together easy while taking care of the legal nightmare.
These legally binding co-ownership agreements, which cost $350 for each buyer, set out rights and obligations in relation to a jointly owned property.
Director Jeremy Levitt, a former property lawyer with Allens Arthur Robinson, says the agreements protect co-owners' interests if one party fails to make mortgage payments, thus protecting credit histories.
"You are jointly liable but the non-defaulting party can step into the shoes of the defaulting co-owner and take over their share, refinance or sell out," Levitt says.
"All the costs associated with a defaulting party are taken out of their share. Also, if one party wants to sell we've established a way to assess fair market value which is neither an estate agent's nor a bank's valuation. It is an expert valuation, so you get a pro-rata share of that."
Refinance
You can save money by taking a loan with a non-bank lender like Aussie, Wizard, Resi or through a broker like Mortgage Choice.
Members Equity, which is a bank that can take deposits, does not charge fees, and has a standard loan rate of 9.04 per cent.
But the major banks dominate the mortgage market in Australia – some 90 per cent of market share – so switching lenders can be costly. Some banks charge $1500 or more if a mortgage is paid out in the first three years. New loan application fees also cost between $400 and $600, depending on the lender.
Official statistics show some 30 per cent of all housing finance is for refinancing.
But the Mortgage and Finance Association of Australia reckons 88 per cent of people who changed providers when refinancing their home loan found they were better off. Seven out of 10 managed to get a lower interest rate.
Extra repayments
Extra repayments clear loans quicker. Simple.
Mortgage Choice national manager of corporate affairs Warren O'Rourke says an extra $20 a week on a loan of $250,000 at 9.47 per cent over 30 years saves $105,000 in interest plus it reduces the loan term by more than five years.
"Get to know your mortgage," he says. "More than half of Australia's mortgage holders do not know their interest rate. Does your loan have a range of features you don't use? You might be able to switch to a cheaper loan with fewer options. Or, you may benefit from a loan with more features, such as an offset account."
Negative gearing
It's been all the rage, buying an investment property to make a loss to claim some tax relief. It works well if you are a high-income taxpayer, but it can be a gamble in this lacklustre property market.
Here is how negative gearing works: Sally buys a unit for $300,000 to rent out. She puts in $50,000 and borrows $250,000.
The loan at 9 per cent interest costs her $24,900 a year and the weekly rental income is $300 or $15,600 annually.
Ongoing costs including rates, water, insurance, maintenance and depreciation allowance are $2600 each year. After expenses, income for the year is $13,000, so Sally lost $11,900.
She can reduce the tax liability on her other assessable income by the loss of $11,900 on the property.
If she earns more than $180,000 a year and is on the highest marginal tax rate of 45 per cent (including the Medicare levy) this tax deduction would have the ultimate effect of reducing the real loss from $11,900 to $6545.
But if she were an average income earner on $55,000 a year, paying 30 per cent income tax, her loss would be $8330 for the year.
That's how much she needs her property value to increase in a year to break even.
If the property market is flat or only slightly positive, the strategy is no better than putting the deposit in the bank where she could earn 8 per cent with a fixed term.
Taxing times
HLB Mann Judd tax partner Peter Bembrick says the way finances are set up to buy investment property is critical. If you make extra payments on an investment loan and the loan's redraw facility is used to access money for personal use, the interest attributable to the redrawn funds no longer will be deductible.
Also, costs associated with taking out a loan for investment purposes cannot be claimed outright.
The main thing the tax office looks for when auditing is pretty simple but many people get caught: If you renovate your investment property above and beyond normal repairs – such as a new kitchen – then the cost is depreciable over time and not a capital expense.
A cooktop, stove and dishwasher are depreciable but kitchen cupboards and sinks are not.
Auction v private sale
It's a contentious area – to go to auction or not.
Some agents think the best price is achieved at auction, where high emotion, pressure and competitiveness among buyers can lead to higher prices.
Others take the opposite view and say that private sales are better.
For buyers, auctions can be stressful and migraine-inducing if the bidding is close and getting beyond your budget.
PRDnationwide Queensland manager Roger Miles says auctions are
great for property in demand, hard-to-value properties and for sellers not wanting a sale with added clauses.
"If time permits, auctions will attract competition," he says.
"Allow four to six weeks for a campaign to pull buyers in and allow them time to get their pre-purchase inspections done," he says. "Buyers must be well prepared, with finance approved if required, deposit available to be paid immediately, and building, pest and body-corporate inspections all done."
Auctioneer costs also need to be considered, as a contracted auctioneer could cost up to $500 on the day.
Typical costs for the advertising and marketing of a property for auction is $4000 to $5000.
Contracts
You've found the property, bargained like a hard-nosed professional to agree on a price. So now what?
Brisbane lawyer Tim O'Dwyer of O'Dwyer & Bradley Solicitors believes consumers should not sign legal contracts to buy or sell real estate without independent legal advice.
Naturally, he could be accused of trying to drum up business for himself. But like most crusaders, if money was his motive, he'd earn a lot more by keeping quiet.
O'Dwyer says some agents may persuade consumers to sign contracts by using a true but very misleading word. That word is "standard".
"Whether you are buying or selling, you should always engage an independent conveyancing solicitor," he says.
"It may seem cheaper but it is riskier and consequently unwise to do your own conveyancing.
"Also, never use a solicitor recommended by the vendor or real estate agent because they won't be truly independent."
Many agents will say: "This is a standard contract approved by the Law Society and the Real Estate Institute."
But remember, real estate agents have no legal training and their ultimate focus is to get sales.
A spokeswoman for the Real Estate Institute of Australia says experience shows people who set out to handle their own conveyancing often strike problems in the process.
"They may end up seeking professional legal advice that can cost as much as, or more, than the original conveyancing charges they sought to avoid," she says.
Negotiate
Take your business elsewhere if you don't get any joy out of the big banks.
Jennifer Nielsen, chief executive officer of Loan Market Group, says there is nothing to stop customers from being pro-active about their home mortgage rate.
"Don't sit around and wait to be told what to pay. Make sure you are getting the best deal possible from today," she says.
New online lender LoanAustralia boasts a low 8.70 per cent variable rate with funding sourced through AAA-rated global giant GE Money.
LoanAustralia's fully featured home loans also have no fees.
"Consumers are getting tired of banks increasing interest rates and are losing faith in their commitment to customers," says Emad Tadros, CEO and founder of LoanAustralia.
"By taking our operations online we have been able to cut business costs by 90 per cent. While we have experienced customer service operators, we don't have expensive offices and our customers don't pay broker fees."
Borrowing $250,000 from LoanAustralia at 8.70 per cent will save consumers $2275 a year in interest, compared to a mortgage of 9.61 per cent.
Rent v buy
Leanne Wilson of Suncorp says more than a third of Australian households rent – mostly 35- to 44-year-olds – and it is definitely still cheaper to rent than buy.
"I looked at blocks of units where there was both a unit for sale and one for rent," she says. "I looked at units under $400,000. It worked out that the rent would be about 50 per cent less than taking on a mortgage for 30 years. And of course that doesn't factor in the cost of maintenance of the property and rates.
"Obviously renting also gives you flexibility – especially when you are in a job where you move around a lot.
"The attraction for a lot of people is also the lifestyle. If they can't afford to buy near the CBD, rent is an affordable option.
"Obviously the downside is actually finding a rental property in the current market environment."
