Housing Loans
Differences between home loans and personal loans
A home loan is secured by a mortgage over the property being bought. This means that the financing institution can sell the property if the buyer cannot meet the repayments.
Home loan interest rates are much lower than personal loan interest rates (e.g. around 6-8% compared to 12-14%.
The cost of setting up the purchase of a home and the associated loan is much higher for a home loan. Banks typically charge and application fee of about $600 and then there is the government charge of stamp duty on the loan.
What is stamp duty?
A State Government tax imposed on the sale of real estate. It is determined by the sale value, and it varies between states.
Historically, a physical stamp (a tax stamp) had to be attached to or impressed upon documents to denote that stamp duty had been paid before the document was legally effective.
Example 9.3, pg.246
Other main costs associated with a home loan.
Valuation fee- this is applied when the bank has an independent valuer look at the property to make sure that the value of the property covers the loan amount.
Settlement fee- covers the cost of the bank arranging the final payment to the previous owner through their solicitor.
Conveyancing- Cost of legally transferring the title (ownership) of the property from the seller to the buyer. It is possible for the buyer to arrange their own conveyancing at a greatly reduced cost, but most people pay a solicitor to do this for them.
Loan Costs
This is some of the approximate costs of taking out a home loan:
Loan application fee -$500-$600
Valuation fee -$100-$250
Stamp duty on mortgage -0.4% of loan amount
Settlement fee - $50-$300
Conveyancing -$500- $1000
Complete exercises 9A.3, pg.248 (Year 11 textbook)