Tricks and traps when buying property

Finding a low-priced mortgage is only one piece of the puzzle facing first time home buyers, who must contend with a raft of expenses such as stamp duty, insurance and mortgage establishment fees which can quickly add up.

“Not every lender will charge the same fees, so it is important you know exactly what you are paying to more easily make an apples for apples comparison, and this is where a financial website, such as Ratecity.com.au, comes into play,” said Alex Parsons, CEO of RateCity.

For instance, some lenders may enforce a loan establishment fee which is meant to cover the costs of the paperwork involved in setting up a home loan, and each lender will charge differently for this work.

“Some may charge hundreds of dollars or more, others will shoulder the fee on your behalf charging no establishment fees at all,” he said.

“It’s important to take this into consideration when calculating the costs of setting up a home loan.”

Parsons also urges first time borrowers to be aware of other potential charges when weighing the lenders up against each other, such as monthly ongoing fees, early exit fees, break fees, deferred establishment fees or default fees, which are charged when a borrower fails to meet the mortgage repayments.

There are other associated costs first home buyers must contend with such as: legal fees, inspection fees, and lenders’ mortgage insurance (charged if you are borrowing over 80 percent of your home’s value).

“LMI is designed to protect the lender, not the borrower, from any loss should the borrower default on their mortgage,” said Lisa Montgomery, CEO of non-bank lender, Resi.

Usually paid by the borrower as a one-off fee (though it can be added to the mortgage), LMI is typically charged for those with less than 20 percent deposit.

“This will depend on circumstances such the type of property and its location and so on,” said Montgomery.

Stamp duty is another potential impost, which can vary from state to state – and whether you are buying an existing home, a new home or building your own home.

“It can also depend on the value of the property, so once again do your homework and be prepared for any stamp duty imposts,” advises Parsons.

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