Context & Problem

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Banks are cautious lenders. Their main concern? Can you repay the loan, even if rates rise?

When assessing your application, lenders look at:

• Genuine savings: can be as little as at least 5% of the purchase price saved over 3+ months but usually a 20% deposit is required (of the value of the purchase)
• Income and expenses: they calculate a “serviceability” score to test your ability to repay at an interest rate a few percent higher
• Credit history: including credit cards, car loans, and Buy Now-Pay Later accounts
• Loan-to-value ratio (LVR): Loans over 80% may require lender’s mortgage insurance (LMI) unless backed by a guarantor

Government grants and family pledges can help reduce your upfront costs — but you still need to meet the bank’s loan serviceability criteria.

Deposits, Grants & Family Pledges

• 5% Deposit Scheme (formerly the Home Guarantee Scheme): enables eligible first-home buyers to purchase a home with a deposit as low as 5%
• First Home-Owner Grant: offered by State Governments, varies by state at $10,000 or more and only for new builds
• Stamp Duty Concessions: offered by State Governments in most states for first-time buyers
• Family Guarantees: parents can offer property equity as security to avoid Loan Mortgage Insurance

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Loan Types & Review Periods

• Principal & Interest (P&I): pays interest as well as reducing the loan over time
• Interest Only (IO): Interest-only loans are often used by investors for cash-flow management; many lenders offer an initial interest only period (commonly 1–5 years), after which the loan reverts to prinicipal &interest unless renegotiated
• Fixed vs Variable Rates: fixed gives certainty, variable offers flexibility
• Bank Review Period: most IO terms last 5 years before switching to P&I or renegotiated interest rate and terms

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Loan Features That Help

• Offset Account: links your savings to reduce daily interest charges
• Redraw Facility: lets you take out any extra repayments you’ve made
• Home Equity Loans: borrow against existing equity for renovations or additional investment instead of providing cash as a deposit

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Aggregated Loans & Debt Consolidation

• Combines home loan, personal loans, and credit cards into a single loan to simplify and reduce interest rates
• Consolidation can simplify repayments, but can also increase total interest paid if the term is extended, and create tax issues if mixed personal & investment debt is blended

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Tax-Effective Debt Structuring

• Investment loan interest is usually tax-deductible; owner-occupied isn’t
• Keep loans for personal and investment purposes separate (it’s the purpose for the borrowing that determines tax deductibility – not the security property used)

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Cash Flow Management & Budgeting

• Track fixed vs flexible expenses
• Allow a buffer for rate rises (compare repayments at an additional 3%)

Use budgeting tools or apps to plan ahead for repayments, rates, and maintenance

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Is it okay to get help from parents?

Yes — a family pledge or gift can fast-track your deposit, but lenders still check your income.

What’s better: redraw or offset?

Both reduce interest but offset keeps the funds more flexible and separate.

Can I change from interest-only to P&I?

Usually yes, but some loans revert automatically after 5 years and may require a review by your lender.

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Should I consolidate my debts?

It can help reduce interest and simplify repayments, but only if you stop adding new debt.

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Is it worth fixing my rate?

Depends on your risk tolerance and cash flow. Fixing provides certainty, but limits flexibility

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