Affording Mortgage - Estimating Affordability and Household Savings - Family of 5

Lfranklowe23 on 20/07/2024 - 22:48
Last edited 21/07/2024 - 12:03 by 1 other user

Hey OzBargainers,

Planning to take on a large mortgage ($1.69m / 53% of net income) and currently working on the family budget to make sure this can be done without too many issues. Noting that my circumstances are way better than many Australians out there doing it really tough, I would still appreciate other experience and wisdom in such matters.

At the moment we spend quite a bit, as we aren't paying a mortgage, and I'm trying to see where we can reasonably cut back.

Situation is as follows:

  • Family - 2 Adults - 3 Kids (at public schools and under all under 11yrs)
  • Income (net): $9100/fn ($236,600/yr)
  • Mortgage (proposed) $4850/fn ($126,100/yr)
  • Remainder (for saving / spending): $4250/fn ($110,500/yr)

Given we are spending more than $4250/fn now, do 5-people families currently working to a budget think this is a workable number for their circumstances (my feelings are this works ok). We like the odd holiday, driving locally and wouldn't mind a simple OS holiday every few years.

For reference I calculate our current expenditure to be approximately as follows:

  • Supermarket Food: $630/fn (almost no eating out)
  • Car Costs (petrol,parking,basic services): $480/fn
  • Insurances (house,car,health etc): $426/fn
  • Utilities (gas,elec,internet,phones): $250/fn
  • Medical: $150/fn
  • School: $70/fn
  • Pets: $70/fn
  • Holidays: $230/fn
  • Kids Care (before/afterschool): $240/fn
  • Coffee: $60/fn
  • Sub Total: $2560/fn
  • Other (clothes, household items, presents etc): $1820/fn

I feel this other category at $1820/fn can take some serious trimming without us suffering too much, but wanted to get a gauge on what others are spending in similar circumstances.

For those out there, how does this compare with similar composition families? Are my numbers way out with yours? Does this other category sound excessive?

Finally does a mortgage @ 53% of net income compare reasonably with others out there in similar situations?

Financial Home Loan Loan

Comments

  • Powershopz on 22/07/2024 - 17:03
    -1

    53% of your income is ridiculously high mortgage and outside your means.

    What if you or your partner become unemployed? What if you have another child and they stop working? What if you get injured etc?

    The above situations should be where your mortgage blows out to 50% and only for a short period like 1-2 years (or account for this).

    • franklowe23 on 22/07/2024 - 20:58

      Yep ack on your points.

      Also it would be 50% of net income, ~35% of gross income (gross income being the standard measure for reasons I can't understand).

  • Roe Jogan on 22/07/2024 - 17:22
    -1

    bro you need to move to a shittier area and buy a cheaper house. thats the only option unless you like the pressure, it will take a toll on you if you struggle, who knows maybe an accidental 4th baby, it happened to one of my friends (2ns baby) and they were forced to keep it

  • lainey13 on 22/07/2024 - 17:38
    +2

    If you did all your numbers already, and the numbers say its possible, what more reassurance do you need?

    • franklowe23 on 22/07/2024 - 21:00

      You never know what you've missed, you only know what you know. I've picked up some interesting expenditure tips I hadn't accounted for through this thread.

  • dmcneice on 22/07/2024 - 18:27
    +2

    With your current income, the mortgage is more than serviceable. I can't predict the future, but I cant imagine interest rates are going to go up a huge amount from where they are, and presuming your income is reliable, you will easily be able to service it.

    Our mortgage is $7400 a month ($3700 a fortnight roughly), and we are on about $12k/month - $6k a fortnight and we make it work. You have more wiggle room, and should be fine.

    • franklowe23 on 22/07/2024 - 21:01

      Thanks for your insights!

  • Miss B on 22/07/2024 - 19:36
    +6

    In my opinion, get a cheaper house. Live more comfortably and with less stress. Go on bigger, better and more holidays. Save and get ahead on your mortgage.

    But also, just do what works for you and your family. If this is what ya'll want, go for it.

    • franklowe23 on 22/07/2024 - 21:02

      Fair point(s) for sure.

  • FrugalDealHunter on 22/07/2024 - 19:41
    +2

    I think you should go for it.

    What’s the worst case scenario?

    Lose job, ask bank for mortgage vacation (~6months), still no job, sell your shares to buy more time (6months?), still no job, forced to sell & property market tanks 20%ish, lose 400kish? which sounds like a lot but it’s 2-3 yrs of your income which is not much for you.

    On the flip side (and what’s happened historically), wait to buy, price keeps going up ahead of income growth, forced to move every few years & rent keeps going up, finally buy at a higher price and bigger loan, or priced out?

    • franklowe23 on 22/07/2024 - 21:04

      Yep I think your worst case scenario is a plausible worst case scenario and yes it wouldn't be great, and no doubt very stressful, but they are the likely numbers we'd be faced with in that situation.

      And history says prices of housing keeps rising, I have always said unsustainably (when compared to wages) and I've always been wrong. Perhaps this time I'm right, or perhaps history is right again…

      • FrugalDealHunter on 22/07/2024 - 21:12

        What I was trying to say is even the worst case (unlikely) scenario is only a 2/3 yr yearly earnings hit which in the grand scheme isn’t much.

        Aus cities are consistently rated as most the livable in the world. There is always a queue of people waiting to come. Melbourne is projected to be 9/10mil by 2050. Demand for housing will not go away. Whats more likely is instead of one generation, households will become intergenerational / inter family to afford a house eg 2x brothers buy etc. and prices keep climbing cos now there are 3-4 incomes. It’s already happening.

        • franklowe23 on 22/07/2024 - 21:16

          What I was trying to say is even the worst case (unlikely) scenario is only a 2/3 yr yearly earnings hit which in the grand scheme isn’t much.

          Sorry I did actually understand your point, but expressed that poorly in my reply.

          Totally agree demand for housing will not go away whilst the population keeps growing.

  • Chazzmingle on 22/07/2024 - 21:41
    +1

    Family of five here with eldest at 11. We bought 7 years ago and I've run a pretty tight budget the last couple of years that has worked very well, and the numbers are similar to yours with a couple of key differences. Our combined net income is $6600, and we make significant additional mortgage repayments, but that still works out to $1660 a fortnight. This means we have about $5k for our family of five for expenses. They look similar to yours, but I would recommend considering:
    - We budget $550 for 'holidays', as that's what we use for any happy family stuff. We buy camping gear, car racks, etc that help us find joy. We also use it for AirBnB's and other holidays.
    - We have $1000 for a slush fire extinguisher account that is used for house repairs and improvements, car fixes, other unforeseen expenses, etc. I noticed you haven't budgeted any house maintenance costs.
    - We budget all of our kids stuff together. This includes considering sports, birthday celebrations, and putting aside extra for Christmas.
    - I cook all the meals and think I'm pretty thrifty, but I spend closer to $800 a f/n on food at the moment. This varies a lot depending on location.

    I'd also recommend calculating based on a variety of interest rates (my most pessimistic scenario is 11%) and seeing what that would do to your budget and how long it could be sustained and how. Also consider your income security and likelihood of income increase in those scenarios.

    • franklowe23 on 22/07/2024 - 21:52

      Thanks for sharing your numbers - it's really good to compare.

      If we go ahead I have budgeted $5.5k for house repairs - we'll be over in the first year no doubt (but can fund this from "emergency" funds) and I suspect it is probably a bit low even though I can do quite a few things myself.

      11% interest rates are quite possibly in our future. I haven't run numbers out that far, not because I don't think it will happen, but because I find it too hard to model incomes at that point in time so the numbers are kind of meaningless.

      The bank has worked us out to the APRA 3% buffer (9.40%) and no doubt that would be tight - more savings required (assuming no increases in incomes).

      • us3rnam3tak3n on 23/07/2024 - 11:02

        Seems optimistic to think your wages will track a sudden interest rate hike (or maybe not in your industry).

        • franklowe23 on 23/07/2024 - 11:08

          Quite possibly optimistic.

          Looking back in history though when inflation ran high, and thus interest rate shot up, wages were also running higher quite rapidly.

          It may of course be different this time. If it is different though they'd be a lot of people in a lot of trouble - at this point it's not the individuals problem it's the bank / countries problem.

  • kgree92 on 22/07/2024 - 23:46
    +1

    How much cash can you put in the offset after buying the property? If significant i.e. ball park say 6 months to 12 months of all expenses (incl. mortgage) then I say go for it. If not then I’d save more first to have these and then go hard for a property that you foresee to live in the long term (10+ years).

    • franklowe23 on 23/07/2024 - 09:46

      We will have an emergency buffer of a couple of hundred thousand when we start. Some of that will need to be spend on new appliances, additional furniture and no doubt some things will need fixing.

      What remains can either be a buffer in ETF's / shares or go into the offset account. Not exactly sure which would be the preferable option at this stage.

  • HCBargain on 23/07/2024 - 08:35

    Don't forget some categories like council rates, home insurance, home/garden maintenance.

    Also a family of 5, similar ages (1 still in childcare), see below for a comparison point in case it helps. This is per month.

    Home maintenance $200
    Home applicances $100
    Gardening $75
    Council rates $250
    Internet $100
    Water $150
    Electricity $200
    Gas $150
    Home and Contents Insurance $175
    Mobile $62
    Car Petrol $500
    Car Registration $150
    Car Insurance $200
    Car Servicing $250
    Footy $100
    Athletics $75
    Basketball $75
    Chemist $100
    Dentist $100
    Health Insurance $500
    Childcare $1,600
    OSHC/Holiday programs boys $250
    School fees/excursion/camps/etc $200
    Groceries $1,300
    Clothes and Shoes $300

    • franklowe23 on 23/07/2024 - 09:47

      Thanks it does help and the numbers seem broadly similar to how I believe ours will look if we buy.

    • michaelTito on 23/07/2024 - 10:32
      +2

      Damn that’s $7500 petrol per year. Should look into getting and EV or a hybrid.

  • Lunarboogie on 23/07/2024 - 09:46
    +2

    I'm in the exact same boat as you, OP. Also in Canberra. In my case, the inner north, close to excellent public schools for the kids so I appreciate your keeness to stay where you are. We Canberrans are fortunate in the high quality of our public schools. It wasn't like this growing up in Melbourne.

    I own so I can't provide any insights into budgeting strategies. It's an ex-guvvie and only 100 sqm, so it's tighter than a duck's arse under water, but we make do. Upscalling would stress me out and nor do I want to be a slave to a Big 4 bank - you shouldn't either. So my point is, stay where you are. Find ways. Go on more weekends away if that helps. But don't get a mortgage if you can pay way less in rent and stay where you are. Simple economics 101 tells me that.

    • franklowe23 on 23/07/2024 - 09:49

      Thanks for your insights - your place sounds a lot like our current rental! The not being a slave to the bank is a good point and one that I have certainly enjoyed as a renter.

  • Doofie69er on 23/07/2024 - 11:31
    +1

    Similiar boat. ~180k net pa.

    ~6.9k p/fn incoming
    ~3.1k p/fn mortgage payment on 1.1m loan

    125k in offset

    Save about 15k a year after everything. Tight for now, but works for us with 2 young kids under 4. ie we don't do much. Once kids are older misso can do more hours and increase income if we need to.

    Bought in a blue chip suburb so no worries if need to sell urgently.

    Some risk now with large amount of debt, but we are relatively young and why not?

    My only advice is make sure you are buying blue chip house with land - you need it to outpace growth interest payments ideally. Don't go buying / building a mcmansion in a bad suburb.

    • franklowe23 on 23/07/2024 - 11:42

      Thanks for your insights.

      Certainly no mcmansion here. Blue chip suburb on reasonable land size, house is dated, but seems structurally sound.

      • Doofie69er on 23/07/2024 - 11:48

        Go for it I recon. Your income and budgeting is solid. Any bank would be happy to give you a loan. Australian dream of owning in a blue chip suburb is not going to change anytime soon. I went from a 2k p/m loan to a 6.8k p/m loan and only difference i feel is the less saving. Where else can you leverage 1.69m for an investment and it will also bring you and yours family happiness and feeling of security.

        • franklowe23 on 23/07/2024 - 11:49
          +1

          Thanks for your lived experience - it's good to know that it has worked out for others.

  • TSH on 23/07/2024 - 11:41
    +1

    Get a mortgage off set account and have your wages go straight in there. Then take out what you need into your main account on a daily/weekly basis.

    Check your account nightly.

    Change your creditcard and bankcard once a year to stop useless leeches who are getting a free feed off you. It also forces you to look for better deals on insurance/subscriptions each year.

    7% compounding interest on 1.6mill is a f-load so assume the 2% days are never coming back and all your other living costs will slowly rise.

    • franklowe23 on 23/07/2024 - 11:43

      7% compounding interest on 1.6mill is a f-load so assume the 2% days are never coming back and all your other living costs will slowly rise.

      Yes it is indeed a lot of money and totally agree 2% rates are not coming back in our time frames.

  • R4 on 23/07/2024 - 11:48
    -1

    Why would you post so much personal financial information on a website that is primarily about bargain shopping?

    Surely, on the kind of income you're on you could afford some proper financial advice? Hell, there's plenty of free resources online for you to use that would be better than the opinions of some random punters on OzB.

    Bizarre.

    • maximus1980 on 23/07/2024 - 12:31
      +5

      because thats what safe online communities like this can offer without identifying members.

      Also I think its a misconception that the kind of income OP is on is some sort of very high/ niche income. Ignore nation-wide statistics on income and affordabilties - they dont matter at individual levels. Most educated people in their early 40's in major cities across Australia - certainly a couple with degrees and working in IT/Finance might be on those numbers. Welcome to new Australia where these numbers are classed as middle class. I understand for many people these incomes might be high but for many many others these are normal. Hence when someone shares their financial information on public forums it is only a fantastic opportunity to learn whatever we can from the scenario discussed and other peoples comments, because sometimes even our closest friends never share their actual incomes ( atleast I wont ) hence we struggle in making strategic decisions like how much loan should i take on ? Are my expenses looking ok etc..

      • franklowe23 on 23/07/2024 - 12:48
        +1

        Totally agree.

      • R4 on 23/07/2024 - 13:33

        I never said that level of household income was very high - plenty of families here in Perth earning that, and more. Blue collar and not necessarily professionals either. I just find it strange that people would share that kind of stuff online. I certainly wouldn't - and I definitely wouldn't be asking for financial advice on here! This is muppet central.

    • us3rnam3tak3n on 23/07/2024 - 16:29

      Surely, on the kind of income you're on you could afford some proper financial advice?

      Asked and answered on the first reply to the OP.

  • maximus1980 on 23/07/2024 - 12:45

    franklowe23 I think you should be fine. My only concern if you have done enough due diligence on the property. I understand Sydney based suburbs/real estate more than Canberra, but I'm in a sort of similar boat. Similarish incomes, only child now in high school.. living in an old house which we bought just before covid for just over $1m. Now the remaining mortgage is just under 500K and we have decided to demolish the old house and build a new one in its place. After all sorts of slicing and dicing ( with evidence from multiple builders) it appears a 380 sqm new house will cost atleast 900K to build. This will set the loan back to $1400K ( again for 30 years) and repayments from about current ~$2900 to ~$8500. I'm a bit a nervous because i was so gettng used to spending freely on vacations and things i didnt need and now will need to drop iback nto early immigrant mode and save on anything and anywhere we can for few years.

    • franklowe23 on 23/07/2024 - 12:49

      Thanks for your insights.

      And aren't houses are super expensive to build in this country! Crazy, given the prices in places like North America.

      • serpserpserp on 23/07/2024 - 14:10
        +1

        They have two things going for them, population and competition (also cheap labour)

    • V2L on 23/07/2024 - 15:14
      +2

      if you can stomach the work/stress involved (building/moving twice/arguing about every minute details of the build/worrying about cost) etc etc you'll usually be financially ahead. in Sydney if your house was a beat up ~1m pre-covid, a large new build that is 380sqm will easily fetch 3m+ when completed. you can always sell up and downsize when you don't have a need for such a large house as some have mentioned in this thread

      • maximus1980 on 25/07/2024 - 16:10
        +2

        Thank you for your support. It is nerve-wracking indeed! But that's pretty much the thinking behind this move. We moved into this old house simply because of the schools and to get closer to jobs. Who knew work-from-home would become the norm back then? We only did basic renovations to make it work for us.

        There are three bedrooms, but they are really small, about 2.7 by 2.7 meters each, with no garage and no storage. It's hard to believe the previous owners raised four daughters in it. We had the pleasure of meeting them right after the auction. All grown up now, with a dozen or so children amongst them… lol. I'm sure the owners weren't working from home in those days.

        Both my wife and I work from home and find it a bit difficult to manage. So, my only dream was to build a house with at least two office spaces far away from each other. I literally designed the house myself and handed the sketch over to the architect to run it through the DA checks and formalise it.

        • V2L on 25/07/2024 - 17:38
          +2

          good luck with it all, it's a big project with many sleeps lost and probably tears shed at times but eventually it'll be all worth it

        • franklowe23 on 25/07/2024 - 20:05
          +1

          Hope it goes well for you!

  • wimphrel on 23/07/2024 - 17:22
    +1

    It sounds like the math works out - you might be in some mortgage stress for the first part of your loan, but that should relax if you can throw everything you can at the principal amount (and make more sacrifices at the start).

    The old rule that I used to hear is that 1/3 of your income to be spent on mortgage -> you're already at 50% which would imply potential mortgage stress risk (e.g. further fuel price rises & food price rises could give you more stress) but looking at your food & car bills you look like someone who has optimised yourself rather well, maybe you can control that somewhat.

    From a personal input perspective: My family income is higher than yours, and I've convinced my wife not to take out such a large loan on our main residence. We bought a property in a lower socio-economic suburb than where our parents lived (not bad though, it just didn't have elite public schools), with the potential intention to pay off the mortgage earlier & upgrade back to the parents suburb later if the said suburb didn't improve by itself (which it is due to price rises & gentrification). I'm going to tell my son it's OK if he want's to become a tradie as if he runs his own business he will earn just as much as I do if not more :P (As I'm one of the outcomes of those elite public schools, and meh… didn't really get THAT much further ahead than most with ambition. There are other skills worth $$$)

    Rest assured, given the price of your property and your willingness to live there, if anything goes wrong - you'll easily find a buyer with a decent offer as a last resort (as long as the economy hasn't run into the ground - If that gives you any comfort)

    I do have friends who have bought properties earlier with similar loan amounts as yours, but I'm of the thought that their family income was also higher than yours as well - changes in job circumstances can be a bit of a risk early in the loan period where the interest repayments are the max. They might also have hung onto their first apartments as investment properties which may help reduce risk on their part too (usually wife & husband each owned their first small 1 bedder apartment, and they sell one of the two to fund the house deposit - sometimes with a middle property like a townhouse in between as a step up).

    • franklowe23 on 23/07/2024 - 21:19

      Thanks - appreciate your insights. Being a traddie is certainly where it is at these days. No uni debt, great income, amazing tax deductions.

  • WhatWouldBiggieDo on 23/07/2024 - 20:09
    +3

    FWIW, we have a very similar net income to you (around $10k pa more) and servicing a $1.8m mortgate without issue. This includes 2 x kids in Catholic high school (and another one in state primary) and a Tesla on a novated lease.

    It obviously completely depends on you as a person, but we grew up with very little and so have never spent lots of money on luxuries and discretionary items. We also know that this means that we can't be going on Europe trips every year, or making other large luxury purchases, but we value having a nice home and spend lots of time here as a family so happy to allocate more of our budget to this.

    • franklowe23 on 23/07/2024 - 21:16

      Thanks - it's certainly good to know what I think is possible is actually possible!

  • kalithreaver on 24/07/2024 - 08:34
    +1

    my tips would be to smash your loan as fast as you can early. we paid off our house in 11 years. its very front loaded so we pumped as much into the loan in the first few years as we could. everyone else was going out and having fun before we all had kids but we were the cheap skates that people complained about. we are free of debt and our friends are all complaining about rate rises now.

    • franklowe23 on 24/07/2024 - 08:49

      If you can make it work it certainly is the way to do it.

  • GourmetFoodie on 24/07/2024 - 14:39

    I am shocked at how low your grocery bill is. How on earth do you spend so little?
    Admittedly I buy a lot of meat and I buy high quality everything as we never eat out - but I reckon I spent $600 a WEEK.

    • franklowe23 on 24/07/2024 - 19:37

      Food today (fairly typical weekday) :

      • Breakfast:
        • Kids: Porridge with milk (all home band)
        • Adults: Muesli with yogurt (home brand muesli)
      • Lunch:
        • Kids: Sandwiches with Jam/Vegemite/Honey (cheapest wholemeal bread)
        • Adult 1: Toasted cheese sandwich (cheapest wholemeal bread)
        • Adult 2: Left over pasta
      • Snacks:
        • Fruit x 2 pieces each
        • Biscuits x 2 per kid
      • Dinner:
        • Tacos (approx cost $30) - will serve two dinners (tacos again tomorrow night - yum! Sadly no lunch leftovers though)
      • Dessert:
        • Aldi chocolate square for 1 x Adult
  • Alpine58 on 24/07/2024 - 21:32

    While our mortgage and income is vastly different (lower)to yours, your fortnightly budget is very very close to ours and we've been managing it that way pretty well for 4-years now.

    Minimising meat intake seems to be a great way to bring groceries under control.

    Private health is starting to push us a bit however.

    • franklowe23 on 24/07/2024 - 21:59

      Private health is a considerable amount of the weekly spend these days!!

  • ozaym on 24/07/2024 - 21:44
    +3

    We are similar to you guys from a % perspective, in hindsight buying a 2 mill property with a million in mortgage 7 years ago was probably not the best decision, but it’s personal, we feel we could have a lot more cash flow if we just bought something cheaper and spent more on holidays etc.. but each to their own.

    • franklowe23 on 24/07/2024 - 21:59

      Thanks for your insights - really appreciate it.

  • kobeduck on 01/08/2024 - 09:02

    What investments do you have? How much are you (still) paying in tax? How do you plan to pay off this mortgage? How comfortable are you with debt? Is this property going to appreciate in price? Do you really need to move? Some questions which you may have already asked. All about quality of life for me. I'd rather have the money working for me but I know in certain situations you need to spend > 1.5 mil to buy a decent house (like in Brisbane)

Login or Join to leave a comment
Login Join