In the market for a new place? Make sure you understand all the costs involved in sealing the deal.
In property, the price tag is never the price.
If you’re a bit new to the game, make sure you’ve clocked these ‘extras’ and make sure you understand the impact they have on your deal.
Bank fees
Interest rates, loan establishment fees and refinancing fees are all important if you’re buying under finance.
Some lenders charge application fees (or establishment fees) when you apply for a home loan. A lender who doesn’t often makes up for it with higher ongoing fees.
If you’re refinancing an existing loan, ask about exit fees. These vary between lenders and depending on how early you’re terminating, they can sometimes be hefty.
Conveyancing & Settlement Fees
Conveyancers are specialists in property law, charging around $1200-$1500 to execute the process.
Banks’ charge settlement fees when they discharge a mortgage, and you’ll pay a government mortgage registration fee as well. The cost varies from state to state with Tasmania charging the least ($135) and Queensland the most ($187).
Interest rates
Shop around for the combination of features that will work best for you in a home loan. Consider offset and redraw options if you like the idea of having access to savings while reducing interest charges. Some banks charge a fee every time you redraw so look out for this.
Both fixed and variable rates have never been lower, but future rate rises should be considered so you don’t get caught short!
Stamp Duty
One of the biggest up-front costs is stamp duty. Calculated as a percentage of the purchase price, this varies state to state. First home buyers may be entitled to a discount, but limitations apply so check before you buy.
Pest and Building Inspections
Having a clear picture of whether your property is in sound structural condition, requires any urgent repairs or maintenance and to check for any pest infestations that may have caused damage to the property is essential.
It’s cost effective to find an inspector who can perform both building and pest inspections at the same time. The average cost is around $500 but it could potentially save you thousands should it discover something nasty. If you suspect the building may contain asbestos, check this too as it can be expensive to remove should you plan to renovate.
Insurance
Once you’ve made an offer, you have an interest in the property and should get insurance as soon as possible. Many lenders insist on annual proof of building insurance, but you might consider other forms of insurance as well. Life insurance covers the balance of your mortgage should you pass away – check life or permanent disability coverage attached to your superannuation account before you take out additional policies.
I’ve written a book about asset protection. No literally, an actual book. There’s a lot too it, but insurance is the foundation of any good asset protection strategy.
Nothing compared to the cost of doing nothing
Anyway, you’ve got to make sure that all of these costs are factored into your deal. Being aware of the extras gives you a clearer picture of the true cost of investing in property, and therefore, the true profits.
DB.