Hi
I am looking for suggestions. Currently have 35K savings and looking to make it more this year to end up for a mortgage. I am 31 with wife and a kid. I am concerned that the money has been sitting in account for long as saving with a 55k income takes time. I am not sure that should i keep waiting for a mortgage or invest the money and delay mortgage plans. If invest then what are the options to invest
yes but since i have not been able to move anywhere else and also have saved a bit more from then I don't want the money to just sit and wait for a great job when i will like to take mortgage.
Unless you're going to buy in a regional area it's not much for a deposit.
I'd invest the money though there are risks involved.
If you do the numbers a 35k mortgage in most cities will be a bit less than a 5% mortgage, unless you're in Perth/Darwin where it'll be closer to 8%.
Given you're a first home buyer you won't need to pay stamp duty which will be a plus, although you'll have to pay LMI which will be a few thousand on top of your loan.
Also your mortgage will take ~5-7 years longer to pay off than one taken out with a 20% loan. Honestly the idea that you can buy a house in Australia with less than a 20% mortgage should really be put to bed, the mortgage repayments for the first few years of the loan will be horrendous.
Invest and come back to the housing market when you have at least 15-20% saved. FOMO is what's pushing up Australian house prices and the only winners are the home owners/developers. A mortgage stays with you for life and interest rates can only go up from here.
If you're paying a 7% interest rate on a $500,0000 mortgage thats $35,000 a year which will not be sustainable for many households.
7% rates will never happen in a way that affects you. Japan has been at 1% for 30 years, USA for 10, all over the world money is being printed for free.
Even if rates did begin to rise the social upheaval of people losing their homes due to increased interest rates would cause the government to implement an assistance package. Think about what just happened in Covid, the potential for even a slight decline in property prices made them announce massive assistance programs plus home builder and force the banks to offer interest holidays to customers. The government has shown there essentially zero risk in buying a home to live in.
I agree with you in Japan's case, they hit a brick wall and i feel we'll do the same. I think they're hovering around the 0.5% interest and America at roughly 2.5%.
The only issue i'd have is when/if the economy starts going crazy again, thinking mining boom 2.0 then they would have run out of levers to pull to keep inflation and spending down. Although i feel we'd need some pretty significant growth to get to those days again.
The fact that a liberal government is running the show and the economy has never been more stagnant really goes to show the amount they've invested in marketing to make people believe they're great money managers
But Japanese property prices have peaked. They even offer 100 year mortgages. It is zero interest rates, maxed out property prices even with 100 year mortgages. In effect everyone is just walking working zombies.
You can't be an investor because you can't sell otherwise you won't get back in. If you buy in then it will be 3 generations paying it off.
Good luck.
I'm not sure that housing in Japan is as inflated as here though. You can get a new house in the centre of Tokyo for under a million. But you can't be an investor because people don't want to buy used houses there, so the values go down. Which lowers the financial motivation to get into the property market, and keeps it more about buying a house to live in. So homeowners get priority over investors.
So while you might lose money in the long run, you could afford to get into the market much easier by adjusting your own priorities of what you want from a place to live. If you don't demand a new place, you can avoid peak property prices, but still do well in other aspects.
eg I've seen decent-ish places close to Shibuya for under half a mil, and I know a dude who was looking at a very big old house an hour away for under $100k.
Overall, by having some disconnect between investment and housing, the overall frothiness of house prices is reduced, which seems like a good thing. This is of course very easy to say as someone who is neither a property investor nor shares Japanese views and priorities.
Things might feel very different if I was trying to make money in real estate, or had a Japanese wife expecting to quit her job and raise kids in a brand new house that drains any hope of saving for retirement.
Sidenote: One very good consequence of all this is that building quality seems to actually improve over time. Unlike our massive costcutting and crooked practises that've led to crumbling buildings like Opal Towers, you can walk into a Japanese apartment built today and from 10, 20, 30 years ago, and tell that things have actually progressed.
If you're paying a 7% interest rate on a $500,0000 mortgage thats $35,000 a year which will not be sustainable for many households.
Most people don't get this point. They think magically more money is going to appear.
Prudent people would make sure there would be enough people falling like dominos before you and the central banks back off. Think of it like 2008/9 when Lehmans was allowed to fail, then they sold Bear Sterns for $1, then Merrill went to Bank of America and BoA had to ask for a bail out. You want to be somewhere behind BoA where the government would have bailed all the idiots out and said enough is enough.
Unfortunately it comes back to people living large and take a mortgage, a car lease on an expensive car then some. I see Porsche SUVs and BMW X5s doing courier deliveries in Melbourne CBD.
Until people pull themselves back from the brink economy is going to stay irrational for longer and prudent people would be looked upon like lepers.
Buy a house. It's a no brainer.
At 3% interest rates it's never easier to leverage a low income and you can obtain an investment instrument that can be leveraged 20x (with 5% deposit) and provides shelter and stability for your family. Add in the First Home Loan Deposit Scheme and free stamp duty and the incentives to purchase a first home are massive. There's not going to be a meaningful property market correction as anytime it looks like prices may fall the government introduces some kind of stimulus.
You can't get 20x leverage (plus avoid paying rent) in any other investment so it's irrelevant if the stock market grows faster than property prices. You only need 1/20th of the growth minus the savings on rent to keep pace with other investments. The rent savings alone probably even out with any extra gains you may see in investments (especially with only $35k available).
Additionally if you live in your home you don't have to care if the price goes down, as long as you can make the interest payment you have a place to live and a grow your family.
If you did that in perth in 2016 you'd be in a pretty deep pile of leveraged negative equity
Sure but you still have a home to live in with your family, a mortgage you can afford, and the ability to sell when prices recover. Never mind the fact that all analysts are predicting property prices to rise in the next 2 years.
Investors are the ones with the big risk in a market decline not owner occupiers.
Also I'm not aware of any market in Australia that is currently experiencing a boom like Perth was in the 2010s. I guess perhaps regional areas if businesses force everyone back into the office and people need to move back to the cities. But that shouldn't really affect the kind of property a first home buyer is after.
The affordable mortgage is a questionable one. The royal commission found that banks couldn't be trusted in handing out mortgages which is why the recommendation for stricter lending criteria came about. Which is what Frydenburg is about to repeal and then we start the whole bubble process again.
75% of all investment properties are negatively geared, indicating that the mortgage cost is greater than the rental yield. Definitely in Perth at the moment it would've been smarter to rent over that period and invest the money that was left over.
75% of all investment properties are negatively geared
People would buy anything if you can make them believe it is an investment.
Even your home is an investment. Unfortunately when it comes to selling all the fees associate with selling plus stamp duty required to get back in you can be sure you won't be getting into the same residence.
It is like telling people buying a Camry is an investment and in 10 years time you can sell it and buy a Corolla and pocket the difference as a profit on investment.
@netjock: 75%? I presume you found that figure before the last financial crash??
If a property is negatively geared at the moment, the rent is to low. Even our dodgy investments are paying for themselves with these interest rates.
@SlickMick: Paying for themselves.
A company with a negative cash flow but paper profits will always go bust.
This concept of negative gearing only works because there is a greater fool who will work a day job to tip cash in for months on end. Enjoy 10 years of misery then even if you are positively geared make you that is including your tax liabilities.
10 years a slave hoping for a big pay off but after fees which means you are left with a far lesser asset (REA fees plus stamp duty). It only paid off you walk away completely.
On negative gearing. Tax laws are there to raise revenue. Don't pretend that negative gearing is a benefit. ATO doesn't list it as a benefit. Someone just started calling it an incentive. It is actually a trap.
with interest rates soooo low do both (as the Mexicans would say!)
borrow double, and invest in a house, bitcoin and shares!
what can go wrong! o.O
interest rates will go negative soon, the banks will pay u to borrow! lol
underrated comment
Whilst I would usu recommend buying a house, who is going to give you a loan with a 5% deposit and 55k salary?
I know you might want to buy now but you just have to be patient, you still have time.
5% isn't a big deal with the First Home Loan deposit scheme covering LMI but $55k income supporting a wife and a child will be a hurdle. That said better to do it now rather than later if you plan on having more children.
Whilst I would usu recommend buying a house, who is going to give you a loan with a 5% deposit and 55k salary?
The QE magic money tree.
What is your housing situation at the moment? Are you paying rent and how much?
currently renting. $1520 a month
Ooof 44% of your take home salary is going towards your landlord a month, i don't blame you for wanting to buy.
Thanks mate :)
@zhk89: This should have been in your original post! You should consider other employment opportunities. $55k pa isn't a great deal imo even for regional.
So if you could borrow $400,000 at 2.5% it would cost you $1580 a month.
$60 more a month than you pay in rent and you own the place you live in. If property prices increase even 1% a year that's $4350 which would be a 12% return on your $35,000. If they go up 7% as predicted you've added $30,000 so an 87% return. No other investment will return anything like that with such a low level of risk.
As I said above, it's a no brainer.
thanks for putting it this way. makes me more inclined to it
I don't think you'll get $400000 on $55k a year, a child and wife (if working will be a bit more).
Maybe you'll get $250k max on 1 income, $400k on 2 incomes which, combined with the $35k deposit won't be enough to buy most places.
And here we have the crux of the issue.
@Drakesy: Just put the details into Aussie home loan calculator, one salary of $55k, 1 dependent and $3k monthly living exp and it said they can borrow $172k.
Depend on where they are looking to buy but it won't get you much.
@onetwothreefour: I agree the OP will find it tricky but $3k monthly living expenses is pretty high. Thats nearly 75% of their after tax income. I feel like this could come down especially as rent would be replaced by mortgage payments
The responsible lending laws being lifted should also help. It's kind of crazy that if you can afford $1520 per month on rent you can't change this over to $1580 for mortgage payments. Especially as they've been able to save $35k while spending this money. The financial position is essentially the same.
@stirlo: Yes agree, I didn't know what to put so went high.
Before I got a mortgage I was paying $540 a week on rent but couldn't get approved for a mortgage anywhere near that much. Oh well I bought cheap and the value of the house has increased by more than $200k in the past 5 years going by some other houses that have sold on our street in the past month.
It's great leverage and potential return but the reality is he can't touch any of it unless he sells. At the income level and fam situation he is at, putting all his savings into one big inflexible expensive asset is quite risky. Cashflow trumps equity and in his case he would be really squeezed by any extra expense, income loss. Earn more or pay a lot less than 400k, or just keep saving and investing a portion, and just call the landlord when the hws breaks.
Ooft my mortgage is $810 a month.
There are two unbelievably big bubbles in the world right now: homes and shares, no wait, 3 bubbles: homes, shares, and crypto, no wait, 4 bubbles: homes, shares, crypto and precious metals…
Any bubble you buy into right now is pure gambling. It might go up as long as the supply of gullible participants continue to join the Great Pyramids of modern economics.
But it might go down. Way down.
So what do you do? What do you do!
So basically what you're saying is very many, even most, hard assets (I don't count crypto which I agree is pure speculation) are going up in price.
Or…the value of cash is declining, funnily enough at the same time huge quantities of which are being conjured out of thin air. This is known as inflation.
If we're headed for inflation, or indeed are already there, the last thing you want to be holding is cash, because its decreasing in value.
If the OP can make a home purchase work IMHO he definitely should, because unlike all the other investments he can actually use it every day, as a roof over his head.
If not, he should consider other investments to at least get out of cash.
Put it all on bitcoin wait long enough and you will be able to buy a house
Scott Pape is always saying 'never invest money you will need within the next 5 years'
https://www.finder.com.au/the-barefoot-investors-warning-for…
"If you have money that you need to draw on in the next five years invested in anything other than a bank savings account or term deposit, you may well lose a chunk of it," he wrote.
"The share market is not a safe place to hold your money in the next five years. However, it's arguably the safest place to invest your money over decades, as it will outrun inflation."
If you need to use the money in the next few years for something like school fees, a house deposit, medical bills or another large purchase, keeping it in the bank will ensure it's still there when you need it. Yes, you could earn much higher returns if you invested the money in shares; however, you also run the risk of heavy losses too (like what we saw in March last year).
"Keep any money you'll need to spend in the next few years in a bank account (or term deposit) that is covered by the government deposit guarantee (up to $250,000). It's not about the interest you earn (which is pitiful), it's the sleep-easy factor of knowing you've got a backstop. That's worth more to me and my mental health than any gain I could make in the market."
The government deposit guarantee scheme means your cash up to $250,000 in an Australian bank is protected in the unlikely event that the bank goes under. In comparison, money in the share market isn't guaranteed and if something were to happen to the company, shareholders are last in line to be paid back.
I’d say 7 years.
Don't worry. Just enroll in day trading course and make it all back plus some more in under a month hehehe
The latest data says it’s cheaper to own than to rent now and for the foreseeable future. Also house prices are forecast to increase rather than decrease as well. That takes away the higher risk of investing, locks in current prices and saves money on a rental. That’s how my maths works anyway but it’s just maths, not a real life.
Hi, Stirlo above said it: you're currently paying a rental cost that would be worth back-calculating to work out how much mortgage you could pay with that money. However, do bear in mind that you will have some recurring costs as a home owner that a renter doesn't have - particularly council rates. You should find out cost of rates in various suburbs of interest for the house (mortgage) value you can afford - before you buy. Also, check for stamp duty levied by state govt (it an issue here in WA, no idea for other states). On the flip side, there are state grants for first home buyers, AND I think there's also a federal grant of some sort at present.
All this is by way of saying I've been in your position - a long time ago, but I remember! I have no regrets going for the house purchase - especially as it cost slightly more to rent per month. But there were lean times! But, there's great psychological comfort in living in your own home.
The one final thing I'd say is don't rush. You and your partner need to consider and calculate: importance of schools, public transport (if one car family - and THAT's a consideration worth doing - do you REALLY need two cars if you can catch a bus/train to work?), nearby parks and playgrounds - vital for small kids and stress relief for harried mums, nearby shops and coffee/cafe), libraries for older kids and you….etc. Be modest in your ambition - you are NOT loaded (yet!). Buy a house you can afford now (you already know how much from your rent-to-mortgage calculation) in an area that you can afford - AND think of it not just as a home, but an investment. You ARE going to sell it one day and move up. So, think about what points would appeal to a buyer when you want to sell…probably the same things that might appeal to you now…but with 5-10 years more local area development, new shopping, schools, pools, trains etc etc.
As a matter of interest, NOW I have paid off my mortgage, downsized AND I have finally got in a position to invest money in shares and funds of various sorts. I'm not super-rich by any stretch, and I probably could have made more money by investing in the market a long time ago….but, I own my own home, and that is a very great comfort as we both get older. All the very best to you both in your decision.
Thanks mate :) great to hear your story.
Does your wife work? you might not have enough leverage to borrow on single income, might be good to speak to a mortgage broker
no she doesn't . yea i am now starting to look for a mortgage broker. thanks mate
I'd be asking yourself if you will be able to afford to rent in retirement. The outcome of that will determine the answer to your posted question. Invest your cash now to boost your savings by all means now of course.
Thought you said you didn't want to get a mortgage in your current role?