How was YOUR mortgage experience?

• 

  gevidian on 24/04/2014 - 10:03

  +1

  The answers to the questions will be affected by the size of the repayments vs take home pay. General guidelines are mortgage payments should not exceed 30% of your take home pay. Most pain and suffering is caused by people taking out too large a mortgage (vs income) and struggling to make the repayments.

  Your first question should be how large are the repayments vs take home pay and that will give you a context to understand the rest of the answers and compare it against your potential situation. A comparison of the mortgage repayments against your current rental payments (+ monthly cash savings) will also give you an indication of how much your lifestyle might change.

  • 

    forever saving on 24/04/2014 - 10:15

    -1

    So how was your experience?
    Banks don't seem to enforce these guidelines.

    • 

      gevidian on 24/04/2014 - 11:15

      I took my first mortgage in 1996 - 20,000 beers later, I can hardly recall the experience!! Interest rates were around 10% - double of what you have today. Do factor in that over a long loan period, there will be years where rates are significantly higher that they are today.

      Banks kind of follow the guidelines when they/you calculate your borrowing capacity - if you assume 8000 per month gross pay (with about 6k take home), your borrowing capacity would be about 350K with $2k monthly repayments. Around the 30% guideline.

      Also you need to factor in other payments that you do not/might not have today - council rates, home insurance, full water bill and ongoing home repairs/maintenance.

      • 

        forever saving on 24/04/2014 - 11:40

        I agree with you. But, I still think a bank will lend to you even if you go over the recommended guideline because in the end they are trying to make money.

        If I were to go for it right now, I think I'd be at 50% income vs repayment excluding extra bills.

      • 

        conan2000 on 25/04/2014 - 09:03

        Garbage. The bank was willing to lend us significantly more than 30%. Their responsibility is to ensure you have enough spare cash after declared living expenses. They were willing to lend us at least 60% of our take home pay.

        But I agree. Don't borrow more than what will result in payments of more than about 30% or day to day life will be a lot more of a struggle.

        Our actual repayments are between 20-25% of our take home. No significant changes in lifestyle, but we definitely do have to consider larger purchases a bit more.

        Also don't forget other expenses you don't have right now. Rates, home & contents insurance etc. That's an extra $2k+ per year we didn't have beforehand.

        We also had to consider could one of us make the payments and still support the other if one of us got made redundant (a clear concern as I worked for a bank notorious for off shoring every job it possibly can).

  • 

    Cheshire Cat on 25/04/2014 - 14:31

    Why do people always pull out the 30% number? It really depends on what your take home pay actually is. Obviously someone earning $40k spending 30% on a mortgage will hurt a lot more than someone earning $140k.

    That being said my $200k loan when I did earn 40k and was single and young was super easy to stay on top of as I was not long out of uni so used to living on nothing. I still went out as much as I wanted but i was also interested in some very cheap and time consuming hobbies….so that always helps.

    A few years back earning $120k with a wife and new baby and a $400k mortgage things were tighter as our lifestyle costs had increased so dramatically, ate better and more expensive foods, went on overseas holidays etc.

    It really just depends on your situation and lifestyle
    .
    The best advice I can give you is if you are good with money and can have restraint then get an offset account for your everyday account. It will save you quite a bit. If you can't show restraint with your spending and can't actively save in an account you access regularly (we do…it is possible :p) then put every spare cent you have into your mortgage and just leave yourself an allowance. I did that on my first loan and sending my extra $120.34 at the end of the week etc. to the loan really added up fast.

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  Tickled on 24/04/2014 - 10:21

  I've had a mortgage for 2 and a half years. I saved up a fair bit for the deposit so my repayments are quite similar to what they would be if i was renting (about $300 a week in Sydney)

  The main struggle is when all the bills come at once. My strata, water and electricity all come around the same time so you just have to plan for it. Strata is annoying, but I couldn't afford a home so you just have to deal with it.

  The first year I was very cautious but since I have been living comfortably as I have worked out how much money and I need and what I can spend. Now I can go out and do what I have always done, but I'm always mindful I have the mortgage

  I don't regret it at all, it would have been good to get it started earlier. I would have been spending $15,000 each year on rent but instead I'm spending it on something that I will actually own

  • 

    forever saving on 24/04/2014 - 10:37

    Would have no hesitation if I could get the repayments to around rent levels. Must have been a big deposit.

    I would have been spending $15,000 each year on rent but instead I'm spending it on something that I will actually own

    Yeah I have the same attitude.

• 

  Baghern on 24/04/2014 - 11:20

  +2

  I find the 30% is like the BMI, for some not for all.

  For families, yes.

  For singles 50% shouldn't be a stretch. My brother a true OzB, and the one who got me on here is probably around 80%/90% thrown onto the mortgage.

  The main thing you need to look at is what you're willing to sacrifice. There's a lot of needless spending people without mortgages regularly think its part of a necessary lifestyle.

  At the same time many people I know who have big mortgages, after a few years of throwing everything at it, calm down and take those overseas holidays, buy big budget toys.

  • 

    forever saving on 24/04/2014 - 11:34

    Wow 80-90%. How does he do it? That must be insane budgeting.

    • 

      Baghern on 24/04/2014 - 14:24

      When he use to work at a retail store, and they saw (experience they know types) what they believe was a harda's bargainer they send him in.

      Buy what you need on places like ebay or just anywhere you can get a discount, ie discontinued stock, places going out of businesses etc. Then selling it when you don't need it anymore - b'tard actually made profits from this.

      Not a fussy eater. Freezer excess food.

      He's a true saver in the sense, he didn't think about saving he just lived it.

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  leeroys_dad on 24/04/2014 - 11:22

  yeah if you are currently paying $300/wk ($1200/month) in rent, your mortgage repayments will probably be very similar, if not the same/better if you have some money saved up.

  after 3 months of owning our place, we went from $1500/mth interest repayments to $1200/mth which was what we were previously paying in rent per month. now we're at $350/mth and love it

  • 

    forever saving on 24/04/2014 - 11:36

    Seems like lots of people are paying as much as possible early, then chilling out a bit.

  • 

    Austin 316 on 24/04/2014 - 12:24

    Same situation. We paid 25% deposit at the start (3 years ago) and after that we had a kid and another one on the way in 3 months. So all the while it has been only me working and on a interest only repayment, we pay around ~$1100 every month.

    We are not sacrificing a lot on living expenses. The only sacrifices we have made are on buying white goods for the house, which we plan to buy once the wife gets back to work.

    • 

      Cheshire Cat on 25/04/2014 - 14:41

      One thing you can do which we have used very effectively is the interest free deals. Basically save up the cash to pay them off while that interest free deal is ticking down…only you are saving it in your mortgage so also saving on interest. Then pay it out the day before it expires. You got the goods when you wanted and as long as you do the maths the interest savings should outweigh the monthly service fees (no point doing it on a $120 microwave with $3 monthly fees for example).

      We generally do have the cash for everything we buy but take advantage of these deals as much as we can when the numbers add up and keep the cash sitting in our offset for a few years.

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  [Deactivated] on 24/04/2014 - 12:46

  +3

  I had a mortgage for thirteen years. I spent the first 9 years not taking it seriously and hardly any of the mortgage was reduced. I decided one day to make some sacrifices to pay it off. I lived like a poor man for 4 years where I had the attitude that every cent in my pocket was the banks. 4 years of hardship meant that I paid of the mortgage. Life's good now. I wish I'd done it earlier.

  One other thing. You buy a house now, in 20 years time, unless the bubble bursts, you'll look back and think how cheap they were.

  • 

    forever saving on 24/04/2014 - 13:44

    How was your health during those 4 years? Stress? Panic attacks? Depression ? Any of that? It can't be easy .

    • 

      [Deactivated] on 25/04/2014 - 08:03

      +3

      My heath was good, I had no money worries as I was so far ahead in the mortgage. My wife was a stay at home mum with two young kids and she was a great support and understood what I was doing and why I was doing it.

      I didn't just pay off the mortgage, I planned how I was going to do it. There are heaps of free Amortisation Calculators on the internet, so I downloaded an excel based version and crunched the numbers into something that was achievable (I actually beat my own plan by 2 years). The funny thing is, I learnt that possessions didn't make me truly happy and that the more things (toys) I had, the more problems I had. Also, when you see your mortgage being substantially reduced, that's a good feeling. The day I went into the lands office in the city with all of the paperwork to make the house mine was an awesome feeling and when I received a copy of the deeds with my name on it in the mail a few weeks later, that was even better.

      In my experience as someone who does own there own house (without winning lotto), I cannot stress this enough: download an Amortisation Calculator and do your own calculations into what you can afford and how long it will take to pay down your mortgage. A good calculator will also show how much you are paying in interest and what effect changes to your payments will make in total interest paid.

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  pclyne on 25/04/2014 - 07:49

  Just a pease consider when looking for a mortgage. Consider a credit Union. When we went looking for one recently the local credit union saved us (in terms of fees and % rate) close to $3000 in the first year and about the same in the second (as the banks honeymoon rate is still more).

  They may not have an ideal product for you, so don't just assume they are the best - just do your homework.

  And, no, I don't work for them - just a happy customer (how many bank customers can truly say that?)

  • 

    [Deactivated] on 29/05/2014 - 09:32

    +1

    You saved close to $3000 - compared to what? Its one thing to say you saved $3000, but if it was overpriced in the first place its hardly a great deal.

    I am with a BIG4 and have a better deal that 99% of the other banks/credit unions and building societies.

    • 

      pclyne on 30/05/2014 - 09:00

      Compared to showing the bank the same $ amount of loan and comparing the interest rate (and not having to pay the $900 loan establishment fee).

      We evan sat down with the loans officer and went through the figures with them.

      At the end of the process the banks own loans officer agreed that we would save some $ by going with the alternative, he then went on to say that despite the {obvious} $ savings the bank "would really like to keep us as customers".

      But that was the only 'discount' they offered - some words

      I no longer bank with them.

      I didn't want to start a war of "my provider is better than your provider" - all I was asking was the original poster considers some provider other than just the banks.

• 

  srhardy on 25/04/2014 - 08:30

  -2

  the RETAIL interest rate should never exceed 3-3.5% and thats to the consumer (not reserve bank) rates as the PROFITS from paying for your own home go ENTIRELY to the bank at 7+% and you may never see a profit after 30 years of repayments.
  (all cals over 30 years)

  eg: $375,000 at 7.5% you will repay $569,000 in interest (plus principal) = $944,000 (roughly) total

  so say you buy now and pay it off, in 30 years you need to resell that crappy, run down house/land for almost 1mil to make $56,000 profit…. After taxes, fee's, penalties and home repairs, upgrades or even a whole new house in that time as the house LOOSES value and its only that land price that increases!

  @3% its $200,000 interest, so you only need to sell for more than $575,000 to be better off. So if the thing in 30 years is worth $944,000 (and i doubt it will) then you are actually $400,000+ better off!!!

  The ONLY person that wins buying a home at over 3% is the bank unless;

  1. pay it off sooner with extra repayments so DONT BUY CARS!!! (A GOOD CAR CAN BE BOUGHT FROM $1-3K AND CAN LAST 10 YEARS OR MORE)

  2. PUT ANY WINS, INHERITANCE OFF THE BIGGEST BEDT YOU OWE

  3. BUY FOR YOUR RETIREMENT NOW AND RENT IT FOR INCOME TO PAY IT OFF AND EITHER RENT, COSHARE OR DOWNSIZE TO A UNIT TO SAVE ON YOUR EXPENCES. ONLY BUY A HOUSE IF YOU CAN DO 1 OR 2 ABOVE!!!! You should be able to rent for less than what buying will cost so put the difference into paying for your retirement property your renting out as a negative gearing off income loss if its not cash positive… AND BUY FOR WHEN YOUR 55+ NOT WHAT YOU WANT TODAY SO DONT BUY BIG AND BUY NEAR THE THINGS YOU WANT IN RETIERMENT LIKE WATER OR BUSH ext…

  FYI, back when the COMMBANK was the reserve bank 3% was the commercial interest rate as URSERY or INTEREST is against christian beliefs as the MONEY IS PRINTED AND LOANED INTO EXISTENCE FROM NOWHERE!!! So why should anyone pay over 3% which more than covers the risk/expenses AND LEAVES YOU THE PAYER THE PROFITS!!!

• 

  ShannonIngram on 25/04/2014 - 10:21

  I work as a mortgage broker. Typically what I tell my clients is that they can afford 5 times their annual income as a loan amount. Eg. If you earn $100,000 you can afford a loan of $500,000. It's not an exact science as it doesn't factor in other liabilities or dependents etc but is a good rule of thumb. Many banks will lend you much more than 5x your annual income and I think in a time of historical low rates, it is good to be prudent with what you borrow. If you are feeling stretched at current levels, maybe it's not the right time to take out a loan (or to look at a longer term fixed rate loan).

  Banks typically assess your loan with a margin built in. Current assessment rates range anywhere up to around 8% at the moment so as a minimum, see if you could afford a loan at those levels before committing.

• 

  StuffnStuff on 25/04/2014 - 10:26

  I think everyone will struggle initially until you change your way of life to accommodate the mortgage… but it does get easier. When I took out my 1st mortgage the interest rate was about 14% (Yes a long time ago), the rate gradually decreased over the years. I think these days with the incredibly low rates, they can only go up so you need to factor this in. House versus apartment, I prefer a real house primarily as I am in control of the expenses and repairs. ie if I choose not to repair, then that is my choice. In an apartment complex you have to consider the body corp fees which you have no control over. I had a friend whose Body corp suddenly increased by 30% one year. Likewise if the Body corp decide they need more money they introduce sinking funds on top of the normal fees.

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  sortev on 25/04/2014 - 11:27

  PhilThis, thank you for mentioning about the amortisation calculator. Didn't know such a tool existed. Just grabbed an excel version myself of the web. It's going to take me sometime to get used to the budgeting but I'll manage eventually.

• 

  ramshead on 25/04/2014 - 12:04

  If your job is secure, consider purchasing a property to rent out. The rent from the property will need to be to be more than the rent you pay. You can negative gear and with careful property selection if things go belly up you can sellout without too much loss. You may not get the property or location you want, but you will get a foot in the door and will start to build collateral.
  It may be prudent to seek financial advice from a reputable source ( yes you will probably have to pay, but this May be tax deductible). Definitely don't rely on the loan seller (bank) for advice.
  Good luck.

• 

  crylea on 26/04/2014 - 18:25

  We're trying to save for a deposit for a $300k loan. How much would we need to save in order to be approved? We're both young, and want to get in early before the houses in the area go up. What's the minimum deposit we can have??

  • 

    ilostnemo on 27/04/2014 - 01:02

    Too many variables, you could have 100k saved and be knocked back as you don't have the capacity to make the repayments.

    I'd speak to a broker.

    20% is also needed so you don't have to pay LMI

• 

  TheG1000 on 05/05/2014 - 12:56

  +2

  I bought our home about 2 years ago now, one of my favourite life decisions so far.
  Situation: Engaged, me on average wage after Uni expecting it to drift upwards, her studying for the next 3 years. Living 15 mins drive from the city (and her Uni) renting cheap property in a not so safe area, 40 minutes from my work, saving money but planning to rent for years (calculated (thoroughly) that renting was as cost effective as buying but with more flexibility).

  Bought:
  Cost $200Kish, offered 12% less than asking price, accepted = happy… or should I have offered less.. don't care.
  Scrimped and borrowed the 20% deposit, so no LMI, also got no fee home loan. Gave up every bit of lifestyle spending for 2 months, HAD to reach the 20% mark otherwise my work history, long term saving etc wouldn't stack up to LMI scrutiny. That 2 months was great practice, we enjoyed the challenge, she got some part time work to assist, baked beans bread and cereal and pizza type diets can save you hundreds a month :)
  Interest cost at the moment is only 70% of what our cheap rent was - so we now save more, even after rates
  The property has solar on it (the old good FIT) = No bills (bonus)
  My wife renovates a room every few months the way she likes, I kitted out one of the sheds as a man cave, we have 3 spare bedrooms, I pretend to know how to prune the roses… I love having my own home, had my fill of renting.
  The bad bits -
  Travel to the city is about an hour by the time you get to the trainstop. Travel to my work was about 60km round trip, motorbike, peak hours. So her Uni was 2 hours travel a day, and her job in the city is also now 2 hours travel a day. I found a new job, as not as many people from my field work as far from the "fancier" parts of town. So bad became good for me, 5 minutes to work, no traffic, EVER. I can get to country areas within 30 minutes.

  The property was cheap, it's not new and you couldn't buy the land and then rebuild the house, sheds, solar etc for the price we paid. There is less financial stress than when we were renting, (The wedding was therefore easier to save for). We are now buying an investment property that'll cost more than our home.

  My opinion is that I live inside the house and yard, I don't live out in my street, I drive to the places I want to be, because they change and will continue to do so. I'd prefer a pimped out mini-mansion 2 hours from the city with an acre of yard than a cubicle dwelling on $400K of dirt 5 minutes from the city, you'd still have spending money from the mini-mansion too. If you can adjust your expectations, there is NOTHING difficult about buying a house if you have a solid job, you can be on the ladder, no stress. You could pay it off in 6 years or less with no drop in lifestyle spending money or buy an investment holiday rental 50 metres from the beach, and lay on the beach reflecting on the expensive dirt you didn't buy (I have chosen option 2).

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  forever saving on 06/05/2014 - 12:38

  Thanks for all the responses. I will need to rent a bit longer at this stage. Save as much as I can.

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  ethereal88 on 06/05/2014 - 17:06

  -2

  Waste of money and effort. You pay a ridiculous amount for a pile of bricks that is nothing more than an overpriced liability and are tied down to said pile of bricks. You give up freedom for what? You slave away for a pitiful wage and spend a fat chunk on it for that?

  • 

    JetBombat on 27/05/2014 - 19:25

    Aye, luck is on you if it is a pile of bricks and not asbestos. So, ethereal88, tell us what is your experience?

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  Placebo on 28/05/2014 - 22:34

  +2

  I bought my first place about 8 years ago. I had a very small deposit, having only worked full time (after studying) for 1 year. As I was buying smack bang in the middle of the massive boom in Perth, it made more sense to buy then with a small deposit, rather than watch prices tear away from me much quicker than I could possibly save.

  It meant I have to pay LMI but I considered this an opportunity cost.

  I bought on my own, so it was a challenge, as I wasn't earning a lot at the time. I worked full time and did a few extra evening shifts a week at the casual job I held while studying. I also had a housemate for the first few years.

  It was difficult for a while there, but not really worryingly so. I budgeted very carefully. I didn't really eat out, or have expensive nights out much anyway, so it wasn't a big compromise. The biggest sacrifice for me, I guess, was working two jobs. That wore me out. But it was temporary.

  I am really pleased that I bought what I did, when I did. Had I waited and bought later, I would have found it much more difficult, with the WA boom moving prices so quickly. I can appreciate why people advise to save up enough of a deposit to avoid LMI, however I think you need to consider your capacity to save in relation to the movement in the market. If the market is moving quicker than you can save, it might be better to buy earlier so that you "lock in" a price.

  Just my thoughts.

  Good luck, you're on a good path if you are saving up with the plan to buy something at some stage :)