Friday, September 25, 2009

On picking the right mortgage product for your needs

Consider this an object lesson in choosing your mortgages, folks. Make sure that you really DO know that you're going to be there long enough not to incur "deferred establishment fees" if you change banks early, and check what sort of legal and discharge fees they'll hit you with both within the first two or three years, and way down the track.

A couple of years ago, when I got on the road to financial freedom, all of this started with me at home, a new baby,  a deposit (inherited from Grandma), our landlord wanting his house back, the (ongoing) Sydney Rental Crisis, Too Much Debt, and Not Enough Income To Be Given a Mortgage (TM).

So, we did what any sensible soul in our situation would do when faced with certain homelessness in the rental market, and teamed up with Dad, who agreed to hold the mortgage in his name for five years until hubby finished his apprenticeship, thus preserving the First Homeowners Grant (which I had a hunch would go up...) and allowing us to build up a "deposit" in the form of equity from work we did on the property.

I guess this is also a lesson in having better faith in my ability to get us out of trouble. I seem to recall saying at the time: "There's no way we're going to be ABLE to break this mortgage inside three years, so it doesn't matter.", thinking it would take five...

Well, this is it: We got to transfer stage in less than two!

Today, debt-free (momentarily, but this was important!), and with my parents about to move overseas forever, I'm about to walk into the local conveyancing office and make the swap. Just in time to take advantage of the First Home Owners Grant Boost of $14,000 before the end of September. We're also twelve months away (hopefully) from moving back up the mountains and turning this into Yet Another Investment Property... so we have to get the grant on this one now-ish (6 month rule) anyway, or we'll never get it at all!

Yep, it's been tight manouvreing into position for this one!

The plan is still to borrow 90% of the minimum estimated value, which, after paying out the original mortgage held by Dad, and coupled with the FHOG Boost should leave us enough to 

a) clad, re-gutter and re-barge the outside of the house, and 
b) fix the kitchen, which has been the bane of our lives for two years already.
c) thereby adding about another $20K to the value of the property.

And while trying to figure out/minimise my costs yesterday, we discovered that we're going to have approximately $5000 (or about 1 year's worth of our built-up equity) swiped by the bank in "discharge fees", legal fees, and most insulting and biggest of all "deferred establishment fees" on the loan.

Lucky we're going to make it for the full $14K boost, or there'd have been nothing left! After all, the last thing the bank wants is to have the outside fall off the house just after we purchase...

But anyway, my point is that no matter what, or how, you go about getting your hands on your first property, make sure you're careful about break costs and deferred punishment fees for paying out your mortgage early. After all, if you find yourselves unhappy with your original lender as we are, you're unlikely to want to screw the nuts down with them to get a better deal second time around: you'll just move on.

I'll keep you all posted on how things go today.

Choose wisely, and good luck!