Understanding the upfront and ongoing costs of buying a home
The financial commitment you make when you buy a home does not stop with mortgage repayments – as you also need to be prepared for all other costs involved in homeownership that extend beyond your home loan.
As a property owner, you need to have an awareness and understanding of these costs, as they are likely to affect your day-to-day budget and could even eat away your savings.
A budget plan is the best way to help you picture how much you need to cover homeownership costs. You do not need to do the maths yourself, as Your Mortgage's Upfront & Ongoing Cost Calculator will do the job for you!
How does the Upfront & Ongoing Cost Calculator work?
Your Mortgage's Upfront & Ongoing Cost Calculator is an intuitive financial tool that can help you understand the total costs of buying a home and taking out a home loan.
To use this calculator, you first have to input the state and the region where your property is located. This will allow the tool to determine the rates that will be applied to certain homeownership fees. Every state has its own rules regarding certain fees like stamp duties, among others.
Next, you have to supply the pertinent property and mortgage information, including the house price, loan amount, mortgage term, and interest rate.
The tool will also ask about costs such as conveyancing fees, mortgage application costs, and removalist expenses. You will also need to note if you are paying for home-and-contents insurance. Lastly, the calculator would require you to indicate the council rates in your area.
With this information, the Upfront & Ongoing Cost Calculator will be able to provide you with a breakdown of all homeownership costs, including the upfront and recurring costs.
Breaking down the upfront costs
Upfront costs are fees that you need to pay before or during settlement. The biggest chunk of your upfront costs is your home loan deposit, which is generally around 20% of your property's total purchase price.
Another significant component of your upfront costs is your property's stamp duty. The amount of stamp duty varies, but your state and territory usually determine it through the overall value of your property.
It also depends on other factors, such as whether you are a first-home buyer or an investor. To calculate your stamp duty, use Your Mortgage's Stamp Duty Calculator.
State governments have a range of programs that can grant stamp duty concessions to first-home buyers. Visit your local tax offices to find out if you are eligible for any of the stamp duty benefits. Familiarise yourself with stamp duty rules by reading this guide.
Building and pest inspections are also part of the upfront costs you have to settle. It is strongly recommended to carry out these processes to make sure that your house maintains structural integrity.
Also included in the upfront costs are legal fees. These are paid to accomplish all the legal aspects of buying a home, including completing a property and title search, ensuring that strata inspection is in place, reviewing and exchanging the sales contract, arranging to pay taxes, and overseeing the transfer of the property's title.
When you apply for a home loan, you will encounter another set of upfront costs. Aside from your deposit, you will need to pay application costs, valuation fees, and conveyancing charges.
Ask your lender for a comprehensive list of upfront costs for you to know where your payments go.
To know more about home-loan upfront costs, check out this guide.
As part of the requirements of the state, you will also have to pay a mortgage registration fee. Your local government will need to register your home loan since your property will serve as the security.
What about ongoing costs?
Ongoing costs cover everything you need to pay after you officially become the owner of the property. These costs are recurring — they can be scheduled weekly, monthly, or annually within the life of the loan and your ownership of the property.
A major part of your ongoing costs is your monthly repayments, which depend on your home loan amount, your mortgage term, and your interest rate. You can try using our Mortgage Repayment Calculator to see how these factors can affect how much you pay during your chosen repayment schedule.
Home and contents insurance also belongs to this fee category. It is highly suggested that you get insurance for your home to protect it from damage caused by natural disasters and accidents.
A home and contents policy will also help secure all your possessions. There are many insurance policies available out there for homeowners — what you must do is to make sure that your insurance product will meet the protection needs of your property.
You should also check your local government and councils for a guideline cost for recurring rates, such as for land and water. Do not forget to factor in any costs you might incur for repairs and maintenance of your property.
Tips on how to reduce costs
Do not be overwhelmed by the number of fees you have to pay on top of your home loan deposit and your repayments. There are things you can do to make sure you are prepared to face these costs and even reduce them.
First is to have a good credit score: this is your ticket to better deals and financing options. If a lender sees that you are a credible borrower, they will want to do business with you and prioritise you over others.
If you have proven yourself creditworthy, you can negotiate with your lender to waive some charges like application fees and annual fees. You can even negotiate for a lower interest rate.
It also pays to do research — be in the know of the latest market developments, especially in the area where you are planning to buy a property. As mentioned earlier, each locality has its own rules on homeownership and costs. This information can easily be accessed online.
One final tip is to seek expert help. Mortgage brokers and financial advisers will be able to make sense of all the numbers you are trying to crunch, giving you a better understanding of what it means to buy and own a home.
Reach out to a financial expert today by clicking here.