The basics
In order to buy/build a house you usually need a large sum of money, which you could lend from a bank or an insurance company. They will lend you the money and expect you to pay a certain amount of interest in return. Interest rates vary over time, but are usually between 4-15% per year. So if you would lend $ 300.000 against 10% interest, you would need to pay the bank 30.000 per year, which is $ 2500 per month.
On top of that, the bank usually insists that you take a life insurance. There heaps of insurances to choose from, all with pros and cons. In the section Life Insurances, we will explain the most common ones. The idea is that if one of the breadwinners loses its ability to pay the mortgage, the life insurance kick in, and repays that portion of the debt. Meaning if the bread winner(s) lose their life, the heirs will repay the bank and own the house.
Because we are talking about fair sums of money, the government wants a piece of the action. This is done by means of Stamp Duty. The stamp duty payable on houses depends on the state on the amount the house if bought for. The following list gives a couple of examples of an amount in real life scenarios as of date (August the 2nd, 2009):
| House price: | Vic | WA | SA | NT | NSW | QL | TAS |
|---|---|---|---|---|---|---|---|
| $100,000 | 2,150 | 1,900 | 2,830 | 0 | 1,990 | 1,000 | 2,425 |
| $200,000 | 6,370 | 5,035 | 6,830 | 3,128 | 5,490 | 2,000 | 5,675 |
| $300,000 | 11,370 | 8,835 | 11,330 | 7,914 | 8,990 | 3,000 | 9,550 |
| $500,000 | 21,970 | 17,765 | 21,330 | 21,428 | 17,990 | 8,750 | 17,550 |
| $800,000 | 43,070 | 32,315 | 37,830 | 37,100 | 31,490 | 21,850 | 29,550 |
| $1,000,000 | 55,000 | 42,615 | 48,830 | 47,000 | 40,490 | 31,000 | 37,550 |
To calculate your current values see the following website: Stamp duty calculator
Mortgages and Visa
Banks are not keen on giving loans to all types of visa holders. Temporary visa holders can only use a small set of bank and sometime the Foreign Investment Promotion Board (FIPB) needs to give clearance before a bank can sell you the loan. Before you make any commitments, be double sure that your visa status will not get in the way of the loan. Some banks are more lenient than other, so consult your (It’s a good idea to check with multiple to be absolutely sure) insurance agent to get the best deal.
Not 100% mortgage loans
Banks in Australia are only allowed to lend you up to 80% of the property value. You’ll have to finance the rest yourself. So on a house of $ 500.000, you’ll need to bring $ 100.000 to the table yourself. You can get higher loans, but you’ll have to buy mortgage insurance. This is insurance for the bank that you need to pay for. So you are paying for the risk that you are defaulting and are unable to pay the interest. The beneficiary of the insurance is therefore the bank. This insurance costs, depending on the value you need to insure, a couple of thousand dollars, which will still need to come out of your personal finances.
Renting out your other house(s)
As the mortgage premium of all your investment houses is tax deductable, it’s very lucrative to buy and rent out those houses. See “Why do people rent their houses” section on the Renting page for more details.
