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Aug 15, 2015 Written by 
It seems each year is becoming more and more difficult to break into the property market. Despite the lowest interest rates we’ve ever seen and word that there could be another cut in the cash rate, median house prices are at astronomical levels and leaving some would-be purchasers out in the cold.

There are options to break into the market: outer suburbs, units and flats still offer great value. So if you are considering investing, it may be time to look at what finance options are on trend or available to you.
How To Finance Your Home


1. Construction loan

Whilst the property market is tough to get into, the construction sector is booming. If you have decided to build rather than buy, a construction loan is a great option. Depending on the way a construction loan is set up, you may be able to purchase your vacant block of land first and then arrange to build on the land within a specified time frame.

In a construction loan the lender considers the total amount you need to borrow in order to pay your builder and then breaks down the full amount into separate payments, called progress draws. These are percentages of the total building contract amount paid to the builder throughout the construction process out of your mortgage funds.

While progress draws are being made, the majority of lenders will only expect you to pay the interest due on the amounts that have been drawn.

2. Renovation loan

If you own your own home, but need to grow up and out, there are several ways you can finance your renovation. The first way is to use the equity in your home. Equity is the difference between the bank’s valuation of your house and the amount you owe on the loan. Equity can build up over time either because your home has risen in value or you’ve paid down your loan balance. You can refinance your home – although you should be prepared to change lender of you do this. Opening a line of credit will help you fund your project. This kind of finance lets you access funds as you need it to pay for tradies or materials. You’re charged interest on the balance owing on your account rather than a total loan amount. Redraw could be an option, but this all depends on how much money you have in your account that is available to draw on. Note the balance on your loan increases if you go down this route. Finally, you could seek out a personal loan, but then you paying double the interest and making two repayments.

3. Mortgage

Mortgages will always be on trend. Every year a certain number of people will buy a house and take out a mortgage. The trick is to take out the right mortgage for your circumstance: interest and principal, interest only, standard variable, fixed, low doc, non-conforming, there are myriad types of loans available and this is where your broker can come in very handy.

4. Rent to own

Not something that is recommended. However it is still an option. The seller helps the buyer by allowing the buyer to rent the house for a while, until the buyer builds up enough equity to qualify for a bank loan and own the house. There have been plenty of scams in the rent to own space, so do your due diligence before considering the option.

5. Land rent scheme

Only available in the ACT. Buy or build your property on land that’s rented from the government, so your loan is just for the building. This makes it cheaper and faster to own your own home. It offers a low fixed or variable rate, three-month pre-approval and the option to redraw.

6. SMSF

These are tricky, but becoming more and more popular. There are heavy regulations involving SMSF investments, so it is best to seek financial advice. You may want to set up an SMSF primarily to invest in residential property.

You can only buy property through your SMSF if you comply with the rules.

The property:

·       Must meet the 'sole purpose test' of solely providing retirement benefits to fund members

·       Must not be acquired from a related party of a member

·       Must not be lived in by a fund member or any fund members' related parties

·       Must not be rented by a fund member or any fund members' related parties.

7. Reverse mortgage

Popular among retirees, a reverse mortgage is a complex product that can have a significant impact on your finances and relationships, and your quality of life in retirement. A reverse mortgage allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.

Interest is charged like any other loan, except you don't have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want. You must repay the loan in full (including interest and fees) when you sell your home or die or, in most cases, if you move into aged care.

There are many finance options available, however each has their own benefits and traps. The trick to making the most of your finance is to find the right finance for you, which takes time, diligence, research and good advice.


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