Building A New House
Nov 08, 2019 9:02 am
Long time reader, first time poster.
We're about to embark on a build and we'll be sharing our journey here, but first I have a question about what to include in our build cost and mortgage.
I thought we could simplify the build cost and pay for turf, landscaping, and fencing after we move in.
Our broker has advised that it is best to include that in the build cost, so that we can contribute as much cash as possible at the beginning to keep interest charges at a minimum, and then the bank will pay for those things at the end of the build prior to handover.
It sounds reasonable and seems to make sense but I am not 100% convinced.
It would be great to get input on this.
Thanks in advance!
Re: Should we include everything in build cost, or do afterw2
Nov 08, 2019 11:38 am
Yes, I agree with the broker about including it all in your loan. I would still source turf, landscaping and fencing on your own, not through the builder, and submit those quotes with your building contract to the bank.
Otherwise you'll be paying off your mortgage as well as trying to save money for the extras not done with the build.
Building our first home...
Re: Should we include everything in build cost, or do afterw4
Nov 19, 2019 3:13 pm
I think this is case by case situation. If you have disposable income enough to cover the mortgage repayments and additional costs (such as landscaping), you can choose to exclude those costs from the loan. This is advantageous if you have limited savings to ensure your deposit is 20% or more to cover LMI. The higher the loan, the more savings you need to provide as well.
Brokers normally would want you to borrow as much as possible. After all, they get commissions proportional to the loan size. The more you borrow from bank, the more they earn...
In general, it is definitely better to have lower loan amount as your overall interest would be smaller in long run. So, as long as you have enough savings to cover additional build costs, I suggest to take them out of loan. However, if you don't have enough savings and have to pay them using credit card, you would be better off including those costs into your home loan. After all, home loan is generally lower in interest rate as compared to personal loan and credit card rate.
Re: Should we include everything in build cost, or do afterw5
Nov 19, 2019 7:14 pm
I would personally if I have the cash pay for the extras out of my own pocket. Not sure how much it would change your interest rates tbh and the bank always wants you to loan more money, why? because its better for the bank. If its better for the bank its probably not better for you.
Re: Should we include everything in build cost, or do afterw6
Nov 20, 2019 9:43 am
Thanks fo the replies everyone
We have the cash put aside. So it is either include everything in the mortgage and contribute the cash, or don't include it in the mortgage and pay for it with the cash afterwards
Still trying to wrap my head around the pros and cons. Sure, include everything, pay down the loan with the cash .. the outcome might be the same, but, it still increases the loan amount (redraw will be possible).
If anyone has an opinion or some advice that would be great!
Re: Should we include everything in build cost, or do afterw7
Feb 29, 2020 9:16 am
We decided any extras were going to come out of pocket rather then the loan for us. Our thought process was why put 5-7 thousand on the loan for solar when that adds interest over 30 years. Maybe I'm wrong and I can't speak for everyone's situation but we are in a position to be able to save for extras while the house is being built so that's the path we are taking. Also we are fortunate enough that front landscaping and fencing is included in our estate package so that cuts back on some pretty sizeable costs.
Re: Should we include everything in build cost, or do afterw8
Feb 29, 2020 11:02 am
Case by case basis, get a quote from the builder and another quote or two for another company. Doing this I promptly took most of it out, as the builder wanted to make a minimum 40% mark-up, on some thing's they were quoting 100% above market (e.g. retaining walls and fencing I got a quote for $20K, but I got it done separately before the builder started for $9500).
There's no point paying it upfront and including it on the loan if you pay thousands or tens of thousands extra, which you then pay more internet, deposit is larger, and potentially more LMI for.
Re: Should we include everything in build cost, or do afterw9
Mar 02, 2020 2:39 pm
Depending on where you are based. If you are getting a first home buyer grant in NSW atleast, then you can use that money to cover cost for landscaping, fencing etc. Best not to add to the loan as you will be paying more on mortgage and hence more interest.
Re: Should we include everything in build cost, or do afterw10
Mar 02, 2020 8:15 pm
I agree with the broker. Include as much as you can in the loan. If you still have enough money set aside bank this in the offset account. This lowers your interest payments. Furthermore you can easily access the money in the offset account anytime you need it.
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