October 21, 2017

Why some Young Australians are Buying an Investment Property as their First Home

According to the NAB Residential Property Survey released in 2016, there is an increasing number of young, first-time Australian buyers of investment property. It was found that for the third quarter of that year, first-home investors account for 12.2 percent of all new property sales which is higher compared to the 11.1 percent posted in the second quarter.

Why do some young Australians prefer investment property? The survey shows that first-time investors like flexibility. They can invest in property in other locations which offer lower rates, while at the same time, rent in the city.

It’s never too young to join the investment property bandwagon, but before entering the real estate market, there are various things to take into account so you can get the most out of your chosen investment and minimise risks.

Know the ins and outs of real estate and property investing

Buying an investment property is a major decision, that’s why it is important to educate yourself on how the market works. It costs a lot of money and if you’re not knowledgeable enough, you may end up paying more than you should. But don’t worry. There are a lot of resources online that cover what investors need to know.

Seek professional advice

Aside from educating yourself with online resources on real estate and investing, you can seek advice of qualified professionals. Obviously, they understand the market better, so they can give you helpful insights on home loan comparison, investment strategy, and borrowing capacity.

Save early

One common mistake of those who want to venture into property investing is that they fail to save as early as possible. Young Australians can take advantage of time. This is one great asset since savings have a lot more time to grow. Save early and make saving a habit. Eventually, you’ll have enough disposable income to buy investment property.

Compare home loans

In a competitive market such as investment loans, it pays to have a better understanding of mortgage products. To lower your repayments, you can look for features such as lower ongoing fees, offset account, and a redraw facility. It is likewise essential to compare mortgage rates and choose what suits your needs and financial situation.

Use a home loan calculator

This is a great tool to compare home loans and have a better idea of how much an investment property would cost. There is also a home loan repayment calculator that you can use to get the minimum monthly repayments and interest paid.

Got other tips on how to compare mortgage rates and home loans? You can share your ideas in the comments section.

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How to reduce your home loan balance faster by making fortnightly repayments

Your payment frequency can impact the length of your home loan and the total interest you pay.

Your home loan repayments are likely to be one of your biggest expenses. This makes them a good place to start if you are looking to cut cost. Small changes to your interest rate or loan term can have a dramatic effect on the amount you end up paying in interest.

A simple, yet effective, trick to reduce your home loan balance is to make fortnightly repayments. Doing so will increase the amount you repay each year and get you out of debt sooner. How does this work? Let’s have a look.

Loan repayments are normally made monthly. This means you make 12 repayments each year. When you make fortnightly repayments, you end up make the equivalent of 13 repayments each year.

Here’s an example to demonstrate.

Let’s assume you have a 30-year loan for $300,000 and the interest rate is 4.5% p.a. Your monthly repayments are about $1500. By the end of the year, you would have paid roughly $18,000.

If you choose fortnightly payments your monthly repayment is split in two, for our example, it would be $750. However, and this is where you get the saving, you make repayments every two weeks, not twice a month.

There are 52 weeks in a year, so making repayments every second week means 26 repayments to a total of $19,500 each year.

You end up making 13 months’ worth of repayments each year!

Does it make that much of a difference? Yep. For our example, fortnightly repayments would have saved $40,000 in interest charges over the life of the loan and had it payback four years quicker.

Making fortnightly repayments isn’t any different to making additional repayments. Anything on top of your minimum monthly repayment will have the same effect.

The benefit of fortnightly repayments is that it doesn’t feel like you are paying any extra each month.

Play around with a mortgage repayment calculator to see how much you will save with fortnightly repayment.

If you want to save more on your mortgage you should first compare home loans to make sure you’re getting the best deal available. After that, fortnightly repayments are an easy way of getting ahead on your mortgage.

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