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Understanding your financial responsibilities and assistance before buying your first home

Understanding your financial responsibilities and assistance before buying your first home

The Australian government has announced a Homebuilder grant. This grant will provide the owners-occupiers a grant of $25,000 for building new homes or renovations in their existing homes. But this grant will be available for only those who have signed the contracts between 4 June 2020 to 31 December 2020.

Some important information for the first home buyers:

Those who are buying or building a new home worth $750,000 are eligible for First Home Owner Grant. And if you are buying this home in regional Victoria, you will get $20,000.

Take a look at the exemptions and concessions in this grant:

  1. Young Farmer’s exemption/concession.
  2. First-home owner with family exemption/concession (up to $200,000).
  3. Principal place of residence concession (up to $550,000).
  4. First-home buyer duty exemption/concession (this grant is excluded from the FHOG and can go up to $750,000).
  5. First-home buyer reduction (up to $600,000).
  6. Off-the-plan concession.
  7. Pensioner concession (up to $750,000).

While buying a home in Victoria, you should know that Digital Duties Form is compulsory for all property transfers.

Who is eligible for First Home Owner Grant?

Anyone building a new home can get a $10,000 grant. Your home should not be more than 5 years old and its value should be up to $750,000. You are not eligible for this scheme if you have

  • Owned a home in Australia either separately or jointly.
  • Received an FHOG in Australia.
  • Lived in a home in Australia for more than 6 months and you owned or partly owned that home.

Concessions and exemptions in detail:

In this section of the blog, we are going to talk about the concessions/exemptions in detail. This is very necessary to know about it for your financial benefits.

  1. Young Farmers Exemption/concession:
  • All the farmers who are eligible for this scheme can get it if they are below 35 years and buying new farmland.
  • Farmland having a value up to $600,000 can get an exemption from the duties on the first $300,000.
  • Those farmlands which have a value between $600,000 to $750,000 can get duty concession.
  • You can apply for either the PPR concession of the Young Farmers concession. Choose the one that suits your demands perfectly.
  1. First-home owner with a family exemption:
  • This exemption is for those who have bought their home on or after January 1, 2006, are eligible for this scheme. A complete exemption is available if your property is worth $150,000 and a concession is available if the value of your property is up to $200,000.
  1. For the pensioners:
  • If you are a pensioner, you have to be sure that you can apply for only among the duty exemption, concession, or pensioner exemption. Be careful before you choose one.
  1. The Principal Place of Residence (PPR) concession:
  • This concession is only for those who are living in their homes and they intend to live there for the upcoming 12 months (excluding holidays and other investments).
  1. Off-the-plan concessions:
  • If you are buying an off-the-plan property as your first home, you can get this grant but you must live in that property as your home. The contract must be signed on or before 1 July 2017. This concession reduces the amount from the contract price of your home, the price involved in refurbishment occurring after signing the contract.
  1. First-home buyer reduction:
  • You can get a duty exemption of up to 50% if you have entered a contract on or before 1 July 2017 and the property is worth $600,000. Though it depends on the date when you signed your contract on or after 1 September 2014, you can get up to a 50% concession.

Conclusion:

We have given you all the information about getting the grants and concessions if you are a first home buyer.

Mortgagers should refinance as per RBA Governor

Philip Lowe (the governor of the Reserve Bank of Australia) has encouraged the mortgagors to refinance after he saw the rise in the number of refinancers. He said it is a big opportunity for the refinancers as the interest rates are lowest at this moment that can maximize the benefits of the customers.  He also said that it is the best time to buy stuff and ask for new discounts. Here are his exact words about this situation: “I have been observing the situation of people seeking loans for a long time. And I request them all to ask for a rate that they have decided to be suitable. If the bankers are not providing that rate go to some other bank.”

Take a look at the data:

Lowe said,” as the people around Australia are living a life by maintaining the social distance, most of them are constantly looking for good deals on mortgages.”

At this moment the money flowing through the credit market is cheaper as compared to the other times. It has been made possible only because the interest rates have gone down and as a result of it a lot of Australians are attracted to such offers.

There have been refinancing works worth $15.1 billion in May alone. These refinancing tasks have been done either with the same lender or with another. Comparing this data with that of April, you will get to know that it has increased in a rate of 25%.

About 21000 Aussies who have their own homes took advantage of this offer and they have refinanced over $10 billion to external lenders in May alone. But this value has fallen by about 10% for the new owner-occupier commitments. The Governor of the Reserve Bank of Australia is pleased by such a rise in refinancing.

According to Lowe, the situation of real estate is quite stable right now but the stability of the market depends a lot on by the rate of unemployment and the availability of work for them.

Take a look at the lenders who have cut the mortgage interest rates:

After seeing this whole situation, you will notice that the interests on fixed-rate mortgage is slightly lower than the new variable-rate mortgages. Only due to this reason the number of new loans on fixed-rate has increased.

The interest rates are being cut on fixed-rate mortgages by the lenders as compared to the variable-rate mortgages. The table given below will give you more information about the lenders and how they have cut the rate of interest on fixed as well as variable-rate mortgages.

Fixed-rate mortgagesVariable-rate mortgagesTotal
No. of lenders who have cut rates in the month of June&July404257
No. of home loans with rate cut in June&July487260747

Home loan interests that are available at the lowest rate:

The bankers are offering more and more offers with a lesser rate of interest, the borrowers are the ones who are going to get the most benefits. Take a look at the offers available right now:

  • Bank of Us is providing a mortgage rate that is below 2%.
  • Homestar Finance is providing home loans at a fixed-rate of 2.06%.
  • com.au is providing variable-length home loans at a rate of 1.99% but this rate is valid only for 12 months. After that, the rate will come back to 2.57%.
  • On Freedom Lend you can get a 2.17% variable-length home loans if you deposit at least 30% of the total amount.

How the accountants should advise the SMEs in providing loan

The spread of the Coronavirus has impacted the world so much that a large number of small and medium scale industries are under a state of pressure because they are on the lowest state of cash flow in history.

This situation can’t be eradicated so easily as the businesses across Australia are not completely aware if the plans that the government has made available for assisting the businesses across the country.

The Certified Practicing Accountant (CPA) in Australia has helped and still helping in a lot of such troubles. To make such a large group of people aware of this situation more and more people are needed by the government having completed at least an accounting internship. Then only they will be able to transfer the authentic information in simple words. They are removing all the obstacles that an employer would face. CPA has worked very effectively in making the business owners aware of the way to get funds from JobKeeper if the business is eligible for that.

As per the statement of CPA, the banks of Australia have played a major role in making the SMEs aware of this situation. Having a large number of people with accounting training in an organization is necessary for coping with such situations. A large number of SMEs have cleared their doubts regarding bank loans with the help of banks. But if you take a look at this situation broadly, it has been found that there is a large number of people who are not getting any help from anywhere. The simple reason behind it is they don’t know where to go for the help that they are seeking.

As per Ana Marinkovic from National Australian Bank, this situation has become so challenging only because most of the businessmen are reducing their expenses and they are also trying shift to the online platforms for sales. After we get the virus under control, there are some doubts about the way consumers start spending their money. It is uncertain how much time it would take for the common people to get back to their old habits of spending money.

“In the later phase when we all will get rid of this virus there are major roles that accountants will play in reshaping the business of our country (especially the small and medium-sized businesses)” said Joe Formichella (Head of Small Businesses at Bendigo Bank).

According to Joe Formichella, most of the problems of the businesses that have been affected so far can be resolved if the business owners consult the concerned accountants very early. It will give the business owners enough time to think and know about how much money they are going to get and where to go for the fund. Other things like the time required to repay that money and other things can also be made clear very easily. The demand of the time at present is to fund the small business owners until the time when the situation becomes normal.

The National Australian Bank has launched a new program called the Small Business Hub. It will primarily focus on supporting the small and middle-sized businesses that have been affected by this pandemic. It will help in the process of digitizing, and making the businesses able to sustain the loss that they have suffered so far. No matter which kind of business you have, if you have someone who has completed even a basic accounting internship program, you can easily project the situation of your business for the upcoming 6-7 months. And that would solve a lot of your problems.

The Basis for providing financial support:

There are some factors that decide whether the lender would fund some business or not. At first place, the lender needs to know about the history of that business. The cash flow statements, balance sheets, profit and loss statements like things tell a lot about the potential of the business.

Based on this information, the lender will know about the ability of the customer and the expected time that the customer would take to repay the amount. These are the foremost essentials that matter the most for providing loans to someone.

After analyzing all these things, the lenders will see the complete forecast/projection of the business for the upcoming 12 months.

After gathering all the information mentioned above, people at the banks try to figure out whether the business owners have a genuine reason to get support or not.

Threatening situation of cash flow in the future:

According to Formichella, there are about 30% of owners of SME who are preferring not to pay their loans in the upcoming 6 months. This is only because nobody wants to take any risk and the situation that they are in has not been caused by them.

Most of such people are in a state of panic as they are seeing that most of the schemes run by the government will last till the end of September.

After we get through all these situations, there is a fear of whether the small and middle scale industries will meet the requirements of cash flow in the future.

Conclusion:

If you are having difficulties in finding a good source of information regarding these matters, Accounts NextGen is the perfect spot for you. We are in this business for a long time to provide you authentic information about finance.

5 Top Tips For a First Home Buyer

Will you believe us if we tell you that it’s completely possible to own your dream home just few years into your work life? Well, if this looks like a distant dream, a dream nonetheless, let us bring you closer to it. Let us apprise you of the possibilities and how we can make that dream a reality for you.

You would definitely want to read through these quickers, the top tips that we have collated for a first-time home buyer like you to help you understand what you are aiming for.

Research, research and more research

We just cannot emphasize enough on this point. Starting with assessing your own credit worth, eligibility, to the property you want to own, the neighborhood, the community, things like work to home commute, amenities, types of loans available, kinds of interests that you can opt for etc.

This list can be endless and quite overwhelming, especially for first-timer. But reach out for help, connect with the consultants or brokers who can hand-hold you through the entire process and get you the deal you want.

The deposit amount

It is advisable to save as much as you can in your initial work years because then you’ll be able to make the deposit figure from your end to the maximum. You should be aiming to meet at least 20% of the total property amount as deposit, so you can get 80% as the loan. If your deposit amount is less than the said 20%, you’ll have to take a Lender’s Mortgage Insurance (LMI) which is an insurance for your bank should you default in the payment.

The First Home Owners Grant (FHOG) and concessions

As the name suggests, this grant encourages the fence-sitters to take the first step and become the first home owners. The grant varies from state to state, and for the state of Victoria, the grant is $10,000. But if your home is in regional Victoria, you are eligible for the FHOG of $20,000.

The first home owner is also eligible for an exemption in the stamp duty payment. This amount too varies state to state, and Victoria offers a $10,000 grant and transfer fee concessions.

The First Home Owners Grant eligibility criteria

The criteria may vary state to state but overall in general, you need to be falling into these to be able to apply for the relevant grant and concessions.

  • The applicant must be a real person and not a legal entity, such as a company or a trust.
  • At least one applicant should hold a permanent visa or be an Australian or New Zealand citizen.
  • Each applicant must be at least 18 years of age.
  • The total value of the property must be below the cap amount. Each state has different property value cap amounts so it’s essential you check this.
  • This must be the first time that you and/or your spouse/de facto will receive a grant under the FHOG Act 2000 in any state or territory.
  • At least one occupant will occupy the home continuously for at least 6 months, commencing within 12 months of settlement or construction of the home.
  • All applicants (including spouses) must not have owned a residential property in any state or territory before 1 July 2000.

The other costs

Keep in mind that the costs don’t just mean the property value. You’ll have to factor in about 3-5% of the property value for extra costs like fees, charges etc without getting a brunt for it later.

You may also like to read more about this in our post on 5 top things to know before taking a home loan.

Do drop us a mail or call us if you wish to understand this in depth. We would be happy to help you unlock your new, first home!

5 top things to know before take a home loan

So, after that coveted college degree followed by years of putting in hard work at your dream job, you are finally at one of the most important decisions of your life – to buy your first house. Now, that does mean taking up a home/residential loan, assuming we all can’t be saving 100% of the loan amount for our first home, right? Don’t let the marketing jargon bog you down while you go looking for the best home loan for your dream home.

We have decoded and collated a quick good-to-know list for first home buyers and even for property investors, to help you settle for the best choice.

1. Save for your deposit
The math is simple. The more you save, the less you borrow. Ideally, you need to save at least 20% of the purchase price. So if you end up borrowing more than 80% of the purchase price, you need to pay Lender’s Mortgage Insurance (LMI). LMI is to cover the lender in case you default on the payment.

2. First Home Owner Grant scheme
Even though it is extremely challenging to get this grant with strict eligibility criteria, but if as a first home owner, you meet all those checklist, you may get one. However, the size of the grant varies state to state. Do check out for your state home loans guidelines for that.

3. Interest rate – Now, interest rate has several interesting aspects to it.
A) For an investor buyer – Interest rates may be higher if the lender knows you are not looking to stay there.
B) Fixed and Variable interest rates – While a fixed rate of interest will give you a sense of how much exactly you have to dispense with month-on-month, a variable interest rate gives you the benefit of lowered payments in case interest rates fall. Both have pros and cons, you need to weigh in everything before you opt for either of the two.
C) Split rate – Alternatively, you can also decide a part of your loan at a fixed rate of interest and the rest at variable. This gives you the best of both, obviously with disadvantages for either of the case.
D) Repayment – You can opt for weekly, fortnightly and monthly payouts of the mortgage. Do keep in mind that banks or lenders calculate interest on a daily basis. So opt for the payout that you don’t end up paying more over the term of the loan.

4. Frills and Features
Any additional feature that is being offered in the bouquet may also cost more in terms of extra fees or payments. That being said, most loans offer a variety of features that you can use to your benefit.
A) Additional repayment – You can pay any additional amount you may have got (hello, family inheritance or a lottery!) towards setting off your loan figure.
B) Refinancing – Home loan market is extremely competitive so expect variations in interest rates, different features being offered etc. You can opt to switch your mortgage to another lender or to some other product with the same lender. Just stay updated with the interest rates.
C) Offset account – A transaction account attached to your loan account, the balance of which you can use to set off the outstanding loan amount.

5. Fees and duty
Be very mindful and provide for all the fees, charges and stamp duty that may come up while on your way to the home loan.
A) Stamp duty – As a first time home owner, your stamp duty may stand to be exempted.
B)Lenders Mortgage Insurance (LMI) – Like discussed in the first point, you have to factor in this cost in case you have saved less than 20% of the loan amount.
Most of the one-off fees and costs can also be negotiated upon with the lender, considering the highly competitive nature of the mortgage market. Make sure you bargain hard!

We hope this list gave you enough roadmap on taking that mortgage for your first home. Hit us up in case you have any doubts or queries. We’ll be happy to resolve those for you.

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