Buying Property Questions

Is buying really for me? Is renting a waste of money?

What's the difference between a bank and a credit union?

Do I trust a bank which doesn't have physical branches?

What is the best loan term for me? Does it make a difference?

In theory, the term of the loan can be anywhere from 10 to 30 years - maybe less, maybe more, depending on the value you're borrowing, and the bank.

My advice is not to waste too much time here – a 30 year term, coupled with an offset account is fine.

I think the argument here could be:

"If my loan term is shorter, my repayments are higher, and therefore I'm less likely to spend money on things I don't need"

or

“What happens if I spend all the money in the offset?”

... But we’re passed this – we’re all grown-ups now, who have managed a budget to save enough to get to this point.

I'd argue your spending isn't frivolous if it’s in your budget - it's only when you're spending money you didn't allocate that you've got a problem. Your budget for each category should actually slowly be increasing over time - It's unrealistic to think your expenses wont continue to rise.

What does the amount of interest I pay look like visually, over the full loan term?

Should I consider Muslim banks and Do I need to be Muslim to do so?

What causes interest rates go up and down?

The interest rates banks charge consumers and businesses with loans are loosely based on the Reserve Bank of Australia's Cash Rate - which is updated each month, except January - you can see the outcome of each meeting on the RBA site.

Fixed Rate – these will be higher than variable, you’re ‘paying more upfront’ for the ‘security’ that the interest rate (and therefore, cost of repayments) wont go up (but they wont go down either, they’re locked in, set in stone… fixed).

Variable Rate

What’s a comparison rate – and should I care?

In theory, it’s a way of comparing loans from 2 different banks, where initial conditions are assumed on the person making repayments.

Unfortunately, it has 1 key issue – the assumptions about the person ignore the specific features of the loan itself.

Example

‘Basic’ loan with Bank A has comparison rate 3% - it has no offset account and no yearly bank fees

‘Fancy’ loan with Bank B has comparison rate 3.5% - it has a 100% offset account, and $300 per year of bank fees

The comparison rate is ignoring the potential benefits of the 100% offset account, and just adding $300 per year to the cost of the loan. Sure, if the customer wasn’t going to use the offset – then there would be no sense getting one, but if they did get one, and use it correctly, they might save tens or even hundreds of thousands.

What are the pros and cons to making additional repayments?

What are the pros and cons to offset accounts?