1. Background Information
- Property to Purchase: $370,000 Townhouse (Victoria)
- Personal Information:
- Age: Late 20s
- Single, No Children
- Income: Annual salary of $67,000
- Savings: $23,000 (to be used as a deposit)
2. Purchase Plan
- Purchase Price: $370,000
- Loan-to-Value Ratio (LVR): 95%
- Loan Amount: $351,500
- Deposit (5%): $18,500 (from savings)
- Stamp Duty:
- Fully exempt under the First Home Buyer Concession (applies to first home purchases under $600,000 in VIC).
- LMI Waiver: Eligible for the First Home Deposit Scheme, waiving Lenders Mortgage Insurance (LMI).
3. Expected Benefits
- Stamp Duty Exemption:
- Stamp duty reduced to $0 under the First Home Buyer Concession.
- Cost savings of approximately $9,000–$13,000 (depending on loan amount and location).
- Government Scheme Utilization:
- Eligible for the First Home Buyer Deposit Scheme, allowing purchase with a 5% deposit.
- LMI (Lenders Mortgage Insurance) waived, saving thousands of dollars in additional costs.
- Cost Savings Compared to Renting:
- Current living situation: Weekly rent of $450 (Epping area).
- After purchase: Weekly interest expense of $415.
- Weekly savings of approximately $35 (annual savings of about $1,820).
- Considering annual rent increases, greater long-term savings are expected.
- Building equity through loan repayments.
4. Long-Term Advantages
- Cost Savings and Asset Ownership:
- Eliminates the burden of rising rental costs through home ownership.
- Builds net equity as loan repayments progress.
- Utilization of First Home Buyer Benefits:
- Reduces upfront costs, alleviating financial stress.
- Long-Term Financial Stability:
- Expectations of financial stability through principal repayments and property value appreciation.
5. Considerations
- Cash Flow Management:
- A financial plan is necessary to account for interest rate fluctuations and other costs (insurance, maintenance fees, etc.).
- Emergency Funds:
- Since most savings will be used for the deposit, it’s essential to prepare separate emergency funds.
Final Conclusion
This scenario demonstrates a strategy for a First Home Buyer to maximize government benefits, reduce initial costs, and achieve long-term financial stability and asset growth.
By converting rental expenses into loan repayments, it enables cost savings while building equity. Over time, the appreciation of property value further secures greater financial flexibility.