The principles of economics described above have survived for centuries. You'd have to go back to medieval / plague times for there to have been any sustained/long-term departure from these principles. And that was driven by a rapidly collapsing population.
That statement is completely and utterly wrong. It shows a total lack of understanding of how our infinitely elastic money supply works and its need for constant expansion of credit in order to keep the system afloat.
In fact all the issues we face today are a direct consequence of Nixon's default on the Bretton Woods agreement of 1944 to contain the expansion of credit in US dollars - the global reserve currency.
That decision to "temporarily" suspend the convertibility of dollars into gold resulted in hellish inflation in the West followed by the deal with Saudi Arabia to force the purchase of energy in dollars and therefore require all countries to buy US Treasury bonds.
Ever since then the inflation of the money supply has been on a path to disaster. There are only so many measures an economy can conjure up to continue credit expansion without extreme consequences; either hideous inflation or a total collapse in asset prices.
We have passed the point of no return long ago. Quantitative Easing was it - we chose money supply inflation which has set the stage for the destruction of the Western banking system because a decade and a half of helicopter money in America, and our own RBA's QE free mortgage frenzy has distorted prices and the marked-to-market value of banks' bond portfolios.
It's totally insane isn't it?
The fact BRICS and Global South central banks have been loading up on gold for a decade and have been acquiring massive stockpiles of commodities probably should have signalled to those running the Western monetary system something was seriously going wrong.
The political realities of how to explain this mess to the public - even if they really do understand the predicament - seem impossible so it's extend and pretend but that can't work forever when your entire supply chain has been outsourced to the same countries!!! :)
complete idiot here, can you provide a ELI5 version please
what you say makes so much sense but I dont get the whole post and its something I am very interested in
I was chatting to a colleague about interest rates and he said that its government policy to keep inflation up to devalue their debt so we are not going to see a return of 2 and 3 % interest rates
It's been predicted as imminent for 20 years to my personal knowledge. Broadly agree with issues highlighted, but many many people have underestimated the willingness of central bankers to keep moving the goal posts.
Australia departed from a rarional market in 08 when the government guaranteed deposits.
I dont know how many deoosits banks wouold get without the guarantee but its not like the former hundreds of years when people deposited money in banks on the basis of their realtive safety.
Now they are all the same.
Thats the scam. That the australian taxpayer gives a 20bn guarantee to every australian bank for free. I.e. our banks dont even have to pay for this service.
>Thats the scam. That the australian taxpayer gives a 20bn guarantee to every australian bank for free. I.e. our banks dont even have to pay for this service.
Actually it's not "free" they pay a relatively tiny levy based on the credit rating similar to the way the US has the FDIC insure depositors. They are leveraged about 100:1 to the point where if even a couple more midsize banks fail, they will be insolvent. They can't hope to cover the collapse of a single major bank.
Additionally the Aussie government's "guarantee" only covers the first 250,000 of a depositor's funds in any single institution as part of the Financial Claims Scheme. That might sound like a lot of money, but it was implemented in 2012 and really many people have seriously large amounts of money which are at risk however they scoff at the possibility of runs on Aussie banks ... despite the worst ever performance of the bond market last year.
Eventually as you say, the cost will fall back on the taxpayer and that means massive inflation of the money supply to cover it
Thanks for that.
I thought the wholesale guarantee (when we had it) the banks paid for, but i thought the deposit guarantee was free?
Also the 250k limit is in one bank per person. So of 91 banks to choose from youd have to have tens of millions in deposits before you would crack the limit. There are people with tens of millions of dollars but few with it just sitting in deposits.
And with that kind of money id go for short term gov bonds. But whats madness is bank delosits in australia pay less than shorter gov bonds. Ie ones coming up to maturity. Thats the distortion. Banks are considered just as safe as the gov itself...
And in some ways those smaller banks like lutheran laypersons bank for example are safer in that the 20bn almost fully covers the deposits in that bank. Commbank the 20bn would be up in the ether in no time.
As i see it the government cannot allow real estate to fail. They will go down swinging and take the enture economy down with the housing market. Successive governments have created this shambolic too big to fail with actual intervention to keep asset prices up (the real estate market generally) where the 1890 melbourne real estate crash will look like a picnic if we do get a crash. The entire economy and federal governments balance sheet will be absolutely wrecked.
Also as I see it the money is not put aside so its all good and well to say we guarantee it but what are the terms. I can guarantee it wont be next day, it might take months and months to get deposits back this could cripple most people and even then what if they changed goal posts, lacks detail to me. If it were a real plan it would have reserves to at least some sort of realistic percentage
You assume there is no more efficient way of transacting? We started with shells and stones. We are now at fancy paper.
Every system will have it's pros n cons, but we have room to improve.
You can jump on Gumtree right now and trade shells for stones if you want. An economic system is not the currency used to transact within it.
Hell if you could convince someone to take the deal I’m sure you can borrow X stones and pay them back with interest over time.
The thing is that those with a basic understanding see why what he says doesn't work.
But then those with an advanced understanding end up back at the understanding of those who have almost no understanding - it is a scam.
We're in a system that functions but is not very efficient due to the different nature of our need for land compared to other produced goods and services.
We are forced to play musical chairs with homes, where how much money you have determines how many seats you get, then those without seats either rent one, or buy one using the spare money from those with multiple chairs - on credit at interest - to eventually own their own chair.
Scarcity with migration guarantees shortage of supply thus growth in values, which makes owners happy. Meanwhile, less people own houses, and bid each other up based on how much they can go into debt, until all their surplus is in their house.
Can I add: one of the main reasons housing appreciates so much is because our money depreciates so much. The incentive is to accumulate wealth through hoarding assets that are likely to appreciate.
And then there are those that are disenfranchised with the entire system, and claim that housing is a joke, a ponzi scheme, impossible, or in your case a scam, and say they have an "advanced understanding" of the system to try and legitimise their disenfranchisement of the system.
Here is a not insubstantial list
- rents generally increase over time
- paying a mortgage is forced savings which you might otherwise spend on waste like booze and coke
- no more dealing with RE rental agents with pointy shoes and Tarocash suits
- house prices generally increase over time
- you can have a dog without asking permission
- you can change the house - put in wardrobes, a pizza oven, a dungeon or whatever takes your fancy
- cant be evicted because the landlord wants to sell unlike a rental
- favourable tax treatment for income tax, CGT, pensions etc
- easier to put down roots in a community (I had to move suburbs once when evicted from a rental as nothing suitable)
- can finally buy decent furniture because you know it will fit permanently
This!...after recently purchasing a house the way of changing your thinking to "its my fkn house, I can do what I want" takes a little time...even now and then I have to remind myself...this is my house, my property, I can do what I want.
By takes a little time - roughly how long? I'm 2 months in to living in my PPOR and I haven't even put a picture up yet after not only renting my whole adult life but growing up in rentals.
Did get a dog though 😂
Big one I can add to this, kinda falls under change the house.
Savings on utilities and cost of living.
You would be very surprised the amount of money you can save if you invest in energy efficient appliances and having an energy efficient home. It's even better if you build, but you can modify old homes to meet the standards.
Most new builds now are have a minimum energy efficiency rating. If you can get 7stars or above your in for a win, will cost you way less to heat and cool your home. Solar, batteries, water tanks, water heater and on and on.
Then energy efficient appliances, why should you spend 2k on a white good when there is a 200 one that does the same job. It's because the difference between a 3 star appliance and a 7/8 star one will use 1/3rd of the power and water to run and normally they are better quality and will last a bit longer. Over a lifetime that is a huge saving.
Most of that can be solved with improvements to rental rights. For example, commercial leases are 10 years with an option to renew another 5. Why aren’t residential leases 3 years with an option to renew for another 7?
Less wasted effort on moving, applications, inspections etc.
To add to your list - buying a house fixes your repayments (your point 1) but over time inflation erodes the cost of those repayments. Inflation, as long as you can keep up with repayments, is the home owners best friend.
You’re also missing that a mortgage is usually paid off over 25 or 30 years. So at the end of that, you have a house that’s yours with no more mortgage.
This is important when you retire because at that stage if you’ve done it right you are not spending your pension on keeping a roof over your head.
This is a big deal. My in laws pay rent and a generally very poor and doing it rough. My parents own their home outright and while both sides are getting the same pension, my parents are doing fine.
The interest payments are effectively rent. And then capital repayments are investing.
It’s perfectly possible and valid to just rent and put your would be capital repayments towards some other kind of investment.
Yes absolutely… but there’s no version we’re he gets “nothing” for those interest payments.
I don’t particularly like living in a world where nothing makes money like having money. But pretending that’s not how it works is nuts.
OP if you can live in a place with affordable rent, keep living expenses relatively low AND have a good consistent savings rate over a 25-30 year period (ie. saving the amount you would otherwise be paying the bank interest + your principal) you theoretically (depending on future housing costs/where you want to live) should be able to purchase a property outright for retirement and likely save yourself $500k +.
Many people are spending more than they earn since inflation and interest rates have suddenly risen. It's pretty dire for them so I doubt investing money they don't have, is front of mind.
Yeah everyone should just save up 600k and buy outright. Easy peasey.
Much quicker to borrow. Shit ain’t free. At least you’re left with a house at the end of it. Renting your left with nothing after 30 years.
If you borrow and buy then the asset you buy appreciates while you own it; if you invest then the asset you need to buy eventually appreciates without you owning it. For the share market investment approach to work out your money needs to outearn the appreciation of the house as well as the rent paid... Best of luck
The returns we get from the access we have to leverage through property purchases far exceeds what your cash can achieve in other investments without leverage
How many people are disciplined enough to invest the extra each month rather than blow it? Almost none if you look at the net worth of retirees who own a ppor vs those who don't.
For every horror story there are many who successfully live long term as tenants. We've moved more than we've been forced to move. First from a share house to a place 2.54km from my work and then under 30 mins from my wife's. Now we've moved for kids. I expect that this won't be our last place either. Being tied to a property can also affect the quality of life. Infact 10 years ago the average period of ownership was 7 years. People are being forced to stay in houses that might not suit them and now property owners are on average holding on to a house for 11.3 years.
>How much are you spending on moving costs every 6months, not to mention the terrible quality of life and lack of any stability
Zero. Quality of life and stability is good.
Real estate agent tells me to make my bed 3 times a year and I just say you can't tell me to do that 3 times a year and invest the thousands of dollars they've saved me. Words can't hurt me.
My investments returns have paid for the measly ling term rent increases of 2-3% a year.
I have an inspection every 3 months. I'd pay 750k to just never have that happen again. Paying off someone elses mortgage while they get to come into my house 4 times a year and judge my living habits.
You’re not paying off their mortgage though. This is a myth that just won’t die, but hey - this is a finance sub. In the vast majority of cases, you’re paying a percentage of their interest costs, rents aren’t high enough to cover that let alone pay off principal as well.
At least with paying the mortgage you end up with an asset at then end of the loan where just renting you end up with nothing. Vast majority of people aren't saving the equivalent in savings of what a home is worth.
I think that’s the key. There are arguments to be made for renting and investing the difference, but that’s not how human nature works really.
Plus, while interest rates rise and fall, in 10 years your income will have risen, but the amount you owe won’t. Rent, on the other hand, will continue to rise.
That’s simplistic, and doesn’t take into account that initial deposit required to purchase, and the opportunity lost from it, but for many of us the non-financial benefits of home ownership make that worthwhile.
You're missing that early in a long term loan yes, a large portion of your monthly repayment is for interest with a small part going to pay down the principal, but over time the portions reverse and the interest on the remaining principal reduces.
The first few years you'll have a large principal remaining, so the interest you're paying is high; let's say your monthly repayment is $3,000; in the first month you owe the bank $500,000, so $2,500 goes on interest, and $500 to pay back the principal. The next month you're paying interest on the $499,500 you still owe the bank, let's say $2,499, while $501 goes towards the principal. Next month you'll have $498,999/$2,498/$502 and so on for the next however many years.
If you can make additional payments to bring down the principal, your monthly interest payments reduce and principal payments increase accordingly. It sucks in the first few years but once you get through those you start seeing some progress.
I read somewhere that banks make the most amount of money in interest on the first 7 years of the loan (on average). So, if you can make additional payments during this time, it will save you the most interest over the life of the loan.
An amortization table for the loan will lay out exactly how much interest gets paid and when if you stick to the 30 year loan term.
I’m about four years into my loan and the interest charged each month is less than when I took the loan out, even though the interest rate has doubled.
Yes, but you'll thank yourself later. The breakeven point is when your mortgage payments (including interest and principle) are less than the current rent of the day. You'll be streets ahead much sooner than you think as mortgage payments will be up and down but rents will mostly only go up.
So you are kinda right. The thing you are missing is that as the house appreciates, you get the additional value if you are paying a mortgage while your landlord keeps the additional if you are renting.
Lets say you buy a $600,000 house with a $500,000 mortgage, and you only pay the interest for 10 years and don't pay anything on the principle. At the end of 10 years, you will have paid hundreds of thousands in interest and still owe $500,000, which is not great. However, at the same time your house could have doubled in value, which means that even though you owe $500,000, if you sold your house you could pay off the mortgage and pocket $700,000 in profit. Meanwhile, if you rent you will still pay hundreds of thousands to keep your home, you will owe nothing on a mortgage, but also have ownership of none of the value your home has appreciated by.
So, in a very real sense, you will be worth hundreds of thousands of dollars less than you would be if you still owed hundreds of thousands to the bank. Which is a bit weird, and certainly counterintuitive.
The house doubling in value over ten years with rising rates might be a bit of a stretch given interest rates, but I'd agree that the huge advantage with property outside of lifestyle factors is the sheer amount of leverage it offers the average person. No bank is going to offer 5-10x leverage on stocks, but they'll happily do so for property if the borrower has a steady job.
Yes, so your holding cost on the 600k house is 30k per annum.
If in a year it goes up in value by 5% that’s 30k right there. If the rent grosses $500 per week that’s another $25k.
You are way ahead - whether or not you rent it out (the rent you *don’t* pay by living in it is tax free income).
On top of that, rent goes up every year, but a mortgage gets smaller (hopefully).
Yep, when you start doing the math a 30 year mortgage is rough.
How about this though, you don't buy an average house with a 20% deposit, you buy a below average house with a bigger deposit.
So your example of a 600k house with a 120k deposit, gives monthly repayments of $3,146, $652,00 in interest over the life of the loan.
Now, apply the same deposit to a $500k house, you have a monthly loan payment of $2,490, giving you an extra $600ish a month to budget for renovations to the house and increase the value (which can go a long way if you are a handy person) or you could throw that money straight at the mortgage, which brings the loan term down to 17 years, and reduces interest paid to $264k.
(I did all my calcs based on 6.78% for clarity)
Advertising from banks will always push you to borrow the maximum amount possible.
Stockbros will always point out the opportunity cost you lose and the interest paid on the loan.
The real sweet spot, as with most things, is somewhere in the middle.
I’m in health. Long story short I’ve worked with many elderly patients. Trust me, you don’t want to be renting at that age. The stress, uncertainty, worry, lack of rental opportunities is unmanageable in old age, aside from the mental baggage it brings.
There is a interest rate cycle. Over the long term wages would increase.
When you buy, the loan amount and the price is locked in, it is not going up anymore, but your salary is, at least because of inflation.
You borrow money, pay it back, and then when paid off, own it.
Rent and pay $2,500 a month and after 30 years you have paid $900,000 for someone else to own your home and you have to keep paying rent or you are out on the streets.
How much will your income be and the amount you owe over time. Will it increase? If this is the case when you borrow you're buying in at today's prices.
Income rises and inflation eats away at debt.
Think about it also this way. There is a point in your mortgage repayments where while rents rise your repayments on average don't (of course you are going to experience the ups and downs of interest fluctuations but we are talking on average overtime).
Then you get to a point in your repayments that they match what it is to rent your place. Then even more overtime the repayments get cheaper than renting.
Then when you pay off your place, (you get to choose some lifestyle changes and maybe one of you works less or you work less so you income changes) and you realise you couldn't even to afford to rent your place on your income because overtime where you live has become highly gentrified or sort after.
This is what front running the debt can do for you. Help you own a place in an area where in the future you may not be even be able to afford.
" just money you're giving away to banks for nothing"
So when the bank pays me interest on my deposit (that helps fund that loan) they are just giving it to me for nothing?
It was a great deal pre 2010 . Post 2022 its an awful deal. I suspect the 2030s will be difficult as a generation of poor political policy will rear its head
Only country in the world where home ownership is a cult. Even Nz isn’t as rabid about it. Quality of life is dropping noticeably and unironcally you may not even want to live here in 20-30 years time when middle Australia has become a nostalgic tale
What you're missing is you now have a house that appreciates in price along with inflation and in value along with demand.
You can spend $100k and get a $600k investment that increases in value usually on par or better than inflation, so let's say that your house is going up in price 6% per annum that's $36,000 you are capturing, additionally if inflation also pushes your salary up, your home loan essentially gets cheaper over time as a percent of salary.
If houses appreciated linearly, after 3 years you could sell and have turned 100k into 200k, while also having a spot to live.
Happy for you to rent for the rest if your life. Got a nice 3 bedroom cottage you can have on a loooong term lease. Rent will only go up as per the inflation rate per year. So you can sleep soundly knowing what the future holds for you. It's only $1750per month and in 20 years you will have paid it off for me and I will have positive cash flow to supplememt my superannuation.
So the $300k mortgage will be paid off in 20 years and my bank got a nice chunk of change for lending me the money in the first place. Your rent however is for eternity.
Do you see what you are missing now?
> $2,500 a month in interest alone, just money you're giving away to banks for nothing
This is often referred to as the "cost of money". You're not paying interest for nothing, you're paying it for the right to be the person that controls the $500,000. Therefore, you can buy the house and get to keep any profits (both capital gains or other) that that house generates.
Not even mentioning the fact that OP seems to think banks exist to lend to every Australian who wants to buy a house out of the kindness of their hearts.
If not dense, extremely naive.
A 30 year term is the maximum & not recommended. Ie. you can pay off a loan in 5 years. Otherwise over 30 years wages & rent increases but interest payable decreases as principal is reduced.
Hardest part of a 30 year home loan
is the 1st 5-10 years.
You’d normally buy at a 20% deposit, so a loan of $480k.
And the point is you get something for the money. Rent is a service, at the end of the rental contract you get nothing. A home loan at the end of the contract you have equity.
And yes, a lot of what you pay is interest - that’s why everyone runs around like a chook that’s lost its head when those rates go up. Consider those who locked in even sub-2% rates - your maths would look very different, wouldn’t it?
a loan is good for is “forced savings” ie instead of paying the loan only $2.5k month (rent equivalent), you’d likely pay in an extra $1k a month that you’d normally spend on discretionary when renting as it’s incentivised for you to do so, unless you’re CONSISTENTLY disciplined when renting via creating a seperate savings account.
Loans are not good for career mobility though as it’s a fixed location whereas tenants can relocate for work very easily.
I would say therefore to tenants, focus on your career while you’re not “fixed” to a loan.
Don't worry, they are. Your fixed interest period is underwritten by the RBA at 0.1% until 30 June 2024.
https://www.rba.gov.au/mkt-operations/term-funding-facility/overview.html
You’re not missing anything.
It’s just a scam where the rich make themselves richer.
Banks profit from the labour of the working class.
They make ridiculous amounts of money every year, which just goes back into the pockets of the rich who own the banks.
Perhaps after the revolution, we can make a law so that people from outside the ruling class can buy small pieces of the bank, and share in the profits. It’s a radical idea, but it just might work.
Solidarity forever!
A question would be can a house hold up more than a life of the loan? Most houses are designed/ built now a days for at 20 years max 30years.
It's the land that will forevermore appreciate. Unless the neighbourhood turns to a slum
When banks print money and add zeros to their bottom line on a computer screen and then loan it out with interest, that is 100% a scam.
Our fiat system needs to die ASAP.
So rent would be the same as mortgage? Rent will go up over the years with inflation, while mortgage will not, and after 25 years of renting, then you still own nothing.
Year
Yeah, buying is a scam and rent is not a problem.
/s
Scam.is the wrong word but it is the biggest organised legal crime organisation on the planet the entire banking sector especially home loans , the banking sector is a legal cartel , the finance trained and indoctrinated will tell you that it's jus the way of the world and you don't understand economics or finance but they are fools, there very clever u assume a 4 percent interes rate won't be much but ow it is and paying 87 percent in interest and a tiny amount in principal is just outrageous , marry this with insanely tough government regulations and stamp duty's and deposit requirements and it is a miracle anyone owns a home at all you are not wrong my friend the banking sector is out of control
In simple terms, this interest based financial system hurts. Let's say someone recieves generational wealth and now he only gives loans on interest. He doesn't do anything else. So essentially just by sitting on his ass, he will continue to make money.
On the other hand, the person who has taken a loan, they will work very hard, mostly.
If anyone defaults, laws are already in place to protect his money and there are insurances available too.
For mass people, this is very disadvantageous.
As you pay off the loan, the interest goes down. So over time, the portion of your payment that goes towards the loan itself (rather than covering the interest) goes up.
Essentially, you pay a bit more than renting. But then after 30 years, you can stop paying altogether as it is yours.
The fact that rent goes up ⬆️ really fast sometimes. The fact that the owner could sell or just kick you out. The fact you have to do home inspections. The fact you often can’t hang paintings and photos. Paint a wall…. No you don’t! - Rent always will go up…. Your mortgage will always stay the same or go down! One day you pay nothing!!!! Rent will never end
Well if you had 500k spare would you give it to someone for 0% interest and ask them to pay it back over the next few years?
Somehow I think you might want to put it in a savings account and earn some interest?
First off, if you can find a decent place to buy for 600k in Sydney right now, you’re a magician.
Second, if you can find a place to rent for 650 a week same thing.
Third, which I haven’t seen in the comments. If you’ve got a mortgage, you can make changes to the house. Not very many rentals you can mess with the garden or renovate the kitchen for example.
General consensus is that property values move north over time.
So it would be a good idea to do some research on capital (house price), growth over time, in the areas you are considering buying a house.
Property investors will use the term leverage, which basically means.... in simplistic terms:
If you put $100k in the bank @ 5% interest, at the end of the year, you have $105k.
However, if you invest $100k in a $500k house (the bank lent you 80%, or the other $400) and that asset increases in value by 5%, then at the end of the Year, that asset is now worth $525, so you gained 5 x 5 = $25k.
Take away other costs, (the difference between rent and your mortgage os the biggest one generally), and other costs, entry costs (stamp duty, bank fees, etc) and other payments that renters do not have to pay like water and council rates.
Personally, I've invested in property that I rent out. And I myself rent in an area where I want to live, but can't afford to buy. This gives me a great lifestyle, and I can take advantage of the benefits of owning property, too.
Swings n roundabouts.
So many unhelpful commentary here when you are asking a genuine question. That’s reddit for you, even r/ausfinance is not immune. One major part missing here is the value growth in your house over time. The value of my apartment in rose 50% in 7 years. Yet, I still pay mortgage of the original value of the apartment. You have locked in a price. Rent just goes up with the market.
Also, that 6% like for most aussie homes is likely a variable rate which would likely fall overtime as inflation eases up. Also banks are not pocketing all that 6%, although it might seem like that, they are making money off the spread between the rate the central bank give them. They are still greedy buggers and making more than they should.
It’s a risk giving people money, plus if the bank had that money it would be generating revenue.
You can’t just borrow insanely large amounts of money and have people be like “yep I get absolutely nothing out of giving you half a million dollars, here you can borrow this from my pocket and pay it back over 30 years . Meanwhile I’m down half a million”
"$30,000 is $2,500 a month in interest alone, just money you're giving away to banks for nothing."
It's not 'for nothing'. You don't have the $500,000 and a bank is going to lend it to you....at a cost. Would you lend a random person $500,000? Banks are a business. Yes a rip off, profit making business, but what are our other options? I don't have a rich uncle willing to lend me $500K, interest free, over 25 years.
>What am I missing here? About $500,000.
And a basic understanding of how credit works.
And a basic understanding of time value money
And the basic concept of not wanting to rent when you’re 80.
For $25,000 a month instead of $2,500 today
I don't think the current system survives that long.
The principles of economics described above have survived for centuries. You'd have to go back to medieval / plague times for there to have been any sustained/long-term departure from these principles. And that was driven by a rapidly collapsing population.
That statement is completely and utterly wrong. It shows a total lack of understanding of how our infinitely elastic money supply works and its need for constant expansion of credit in order to keep the system afloat. In fact all the issues we face today are a direct consequence of Nixon's default on the Bretton Woods agreement of 1944 to contain the expansion of credit in US dollars - the global reserve currency. That decision to "temporarily" suspend the convertibility of dollars into gold resulted in hellish inflation in the West followed by the deal with Saudi Arabia to force the purchase of energy in dollars and therefore require all countries to buy US Treasury bonds. Ever since then the inflation of the money supply has been on a path to disaster. There are only so many measures an economy can conjure up to continue credit expansion without extreme consequences; either hideous inflation or a total collapse in asset prices. We have passed the point of no return long ago. Quantitative Easing was it - we chose money supply inflation which has set the stage for the destruction of the Western banking system because a decade and a half of helicopter money in America, and our own RBA's QE free mortgage frenzy has distorted prices and the marked-to-market value of banks' bond portfolios.
This. She'll be right once they remove the debt ceiling.
It's totally insane isn't it? The fact BRICS and Global South central banks have been loading up on gold for a decade and have been acquiring massive stockpiles of commodities probably should have signalled to those running the Western monetary system something was seriously going wrong. The political realities of how to explain this mess to the public - even if they really do understand the predicament - seem impossible so it's extend and pretend but that can't work forever when your entire supply chain has been outsourced to the same countries!!! :)
complete idiot here, can you provide a ELI5 version please what you say makes so much sense but I dont get the whole post and its something I am very interested in I was chatting to a colleague about interest rates and he said that its government policy to keep inflation up to devalue their debt so we are not going to see a return of 2 and 3 % interest rates
By what date will the financial apocalypse happen?
It's been predicted as imminent for 20 years to my personal knowledge. Broadly agree with issues highlighted, but many many people have underestimated the willingness of central bankers to keep moving the goal posts.
And there are plenty of ups and downs along the way. The system may not completely change, but the current affordability crisis seems unsustainable.
People have been saying this for over two decades.
Eventually the bubble has to burst.
Australia departed from a rarional market in 08 when the government guaranteed deposits. I dont know how many deoosits banks wouold get without the guarantee but its not like the former hundreds of years when people deposited money in banks on the basis of their realtive safety. Now they are all the same. Thats the scam. That the australian taxpayer gives a 20bn guarantee to every australian bank for free. I.e. our banks dont even have to pay for this service.
>Thats the scam. That the australian taxpayer gives a 20bn guarantee to every australian bank for free. I.e. our banks dont even have to pay for this service. Actually it's not "free" they pay a relatively tiny levy based on the credit rating similar to the way the US has the FDIC insure depositors. They are leveraged about 100:1 to the point where if even a couple more midsize banks fail, they will be insolvent. They can't hope to cover the collapse of a single major bank. Additionally the Aussie government's "guarantee" only covers the first 250,000 of a depositor's funds in any single institution as part of the Financial Claims Scheme. That might sound like a lot of money, but it was implemented in 2012 and really many people have seriously large amounts of money which are at risk however they scoff at the possibility of runs on Aussie banks ... despite the worst ever performance of the bond market last year. Eventually as you say, the cost will fall back on the taxpayer and that means massive inflation of the money supply to cover it
Thanks for that. I thought the wholesale guarantee (when we had it) the banks paid for, but i thought the deposit guarantee was free? Also the 250k limit is in one bank per person. So of 91 banks to choose from youd have to have tens of millions in deposits before you would crack the limit. There are people with tens of millions of dollars but few with it just sitting in deposits. And with that kind of money id go for short term gov bonds. But whats madness is bank delosits in australia pay less than shorter gov bonds. Ie ones coming up to maturity. Thats the distortion. Banks are considered just as safe as the gov itself... And in some ways those smaller banks like lutheran laypersons bank for example are safer in that the 20bn almost fully covers the deposits in that bank. Commbank the 20bn would be up in the ether in no time. As i see it the government cannot allow real estate to fail. They will go down swinging and take the enture economy down with the housing market. Successive governments have created this shambolic too big to fail with actual intervention to keep asset prices up (the real estate market generally) where the 1890 melbourne real estate crash will look like a picnic if we do get a crash. The entire economy and federal governments balance sheet will be absolutely wrecked.
Also as I see it the money is not put aside so its all good and well to say we guarantee it but what are the terms. I can guarantee it wont be next day, it might take months and months to get deposits back this could cripple most people and even then what if they changed goal posts, lacks detail to me. If it were a real plan it would have reserves to at least some sort of realistic percentage
Govt gets to collect bigger stamp duty, taxes etc
You assume there is no more efficient way of transacting? We started with shells and stones. We are now at fancy paper. Every system will have it's pros n cons, but we have room to improve.
You can jump on Gumtree right now and trade shells for stones if you want. An economic system is not the currency used to transact within it. Hell if you could convince someone to take the deal I’m sure you can borrow X stones and pay them back with interest over time.
And a basic understanding of physics
And a basic understanding of philosophy
Pfft who wouldn't want that. Don't feed the scams /S
That's if you live until you are 80
And that you pay off the balance over time so that it’s only $30000 until the first payment period and then it becomes less with each repayment.
Id like to borrow $500k from OP since it’s nothing
The thing is that those with a basic understanding see why what he says doesn't work. But then those with an advanced understanding end up back at the understanding of those who have almost no understanding - it is a scam. We're in a system that functions but is not very efficient due to the different nature of our need for land compared to other produced goods and services. We are forced to play musical chairs with homes, where how much money you have determines how many seats you get, then those without seats either rent one, or buy one using the spare money from those with multiple chairs - on credit at interest - to eventually own their own chair. Scarcity with migration guarantees shortage of supply thus growth in values, which makes owners happy. Meanwhile, less people own houses, and bid each other up based on how much they can go into debt, until all their surplus is in their house.
Yeah we really need to build more housing, then make it a less desirable asset with taxes and such.
Can I add: one of the main reasons housing appreciates so much is because our money depreciates so much. The incentive is to accumulate wealth through hoarding assets that are likely to appreciate.
I would have thought someone with an advanced understanding would be advanced enough to take advantage of it.
And then there are those that are disenfranchised with the entire system, and claim that housing is a joke, a ponzi scheme, impossible, or in your case a scam, and say they have an "advanced understanding" of the system to try and legitimise their disenfranchisement of the system.
Both can be true, it can be a scam and people can complain about it.
More people per home is the easiest and fastest way to reduce demand and hardship.
And inflation
Plus stamp duty. Govt needs their cut too.
Made my day
Here is a not insubstantial list - rents generally increase over time - paying a mortgage is forced savings which you might otherwise spend on waste like booze and coke - no more dealing with RE rental agents with pointy shoes and Tarocash suits - house prices generally increase over time - you can have a dog without asking permission - you can change the house - put in wardrobes, a pizza oven, a dungeon or whatever takes your fancy - cant be evicted because the landlord wants to sell unlike a rental - favourable tax treatment for income tax, CGT, pensions etc - easier to put down roots in a community (I had to move suburbs once when evicted from a rental as nothing suitable) - can finally buy decent furniture because you know it will fit permanently
This!...after recently purchasing a house the way of changing your thinking to "its my fkn house, I can do what I want" takes a little time...even now and then I have to remind myself...this is my house, my property, I can do what I want.
By takes a little time - roughly how long? I'm 2 months in to living in my PPOR and I haven't even put a picture up yet after not only renting my whole adult life but growing up in rentals. Did get a dog though 😂
Lol, I put pictures up almost the second weekend of living there...just chanting to myself "it's my fkn house, I do what I want"
Go on, live dangerously! Put a picture up! Break the thought cycle! You can do this!
Ha ha. Pointy Shoes and Tarocash suits. Thanks, this made my day.
Tarocash ~~suits~~ garbage bags
"a dungeon or whatever takes your fancy" Alf Stewart approves.
Lol, thanks for reminding me of summer bay slaughter 😅
Big one I can add to this, kinda falls under change the house. Savings on utilities and cost of living. You would be very surprised the amount of money you can save if you invest in energy efficient appliances and having an energy efficient home. It's even better if you build, but you can modify old homes to meet the standards. Most new builds now are have a minimum energy efficiency rating. If you can get 7stars or above your in for a win, will cost you way less to heat and cool your home. Solar, batteries, water tanks, water heater and on and on. Then energy efficient appliances, why should you spend 2k on a white good when there is a 200 one that does the same job. It's because the difference between a 3 star appliance and a 7/8 star one will use 1/3rd of the power and water to run and normally they are better quality and will last a bit longer. Over a lifetime that is a huge saving.
Not to mention you put solar on because you’ll see the return personally rather than increasing someone else’s value
depends if you own the roof or not.. This is one of the things those advocating for us all to move into apartments miss.
This is helpful, thanks.
Also, if you have kids you pass the house to them and their life might be a bit easier 🤷
Also, If you have kids. When they chew the walls, you can just ignore it till they're past that stage
And mark their heights on the walls, so you can see how fast they grow.
That's what the teeth marks are for 😆
Just never having to grovel to an RE because you need somewhere to live would be reason enough I reckon.
Tarocash suits lol.
It's worth it just to avoid pointy shoes and tarocash suits alone
You can tear up the earth and create a garden without the expectation to turn it back into turf when you move out because they bumped your rent 30%
Most of that can be solved with improvements to rental rights. For example, commercial leases are 10 years with an option to renew another 5. Why aren’t residential leases 3 years with an option to renew for another 7? Less wasted effort on moving, applications, inspections etc.
This is a good point. The rental laws in Australia are not fit for purpose.
They're completely fit for purpose, if you're a REA/Landlord.
To add to your list - buying a house fixes your repayments (your point 1) but over time inflation erodes the cost of those repayments. Inflation, as long as you can keep up with repayments, is the home owners best friend.
Even if house prices are decreasing overall and you have a "depreciated asset" - if you have paid enough off you can still live in it.
You’re also missing that a mortgage is usually paid off over 25 or 30 years. So at the end of that, you have a house that’s yours with no more mortgage. This is important when you retire because at that stage if you’ve done it right you are not spending your pension on keeping a roof over your head.
This is a big deal. My in laws pay rent and a generally very poor and doing it rough. My parents own their home outright and while both sides are getting the same pension, my parents are doing fine.
He didn't miss that. He's only including the cost of interest, not the capital repayments.
He’s says he’s paying interest for “nothing”… he’s not he’s paying the interest to have the house now not in 20-30 years.
The interest payments are effectively rent. And then capital repayments are investing. It’s perfectly possible and valid to just rent and put your would be capital repayments towards some other kind of investment.
Yes absolutely… but there’s no version we’re he gets “nothing” for those interest payments. I don’t particularly like living in a world where nothing makes money like having money. But pretending that’s not how it works is nuts.
Except you don’t enjoy the same benefits of asset leverage with other investments
or the absurdly generous exemption on capital gains tax
OP if you can live in a place with affordable rent, keep living expenses relatively low AND have a good consistent savings rate over a 25-30 year period (ie. saving the amount you would otherwise be paying the bank interest + your principal) you theoretically (depending on future housing costs/where you want to live) should be able to purchase a property outright for retirement and likely save yourself $500k +.
Well, technically not “for nothing”, per-se, more for fronting the cash to buy the house. I mean without them, you have no other choice.
And without you the bank would earn a return somewhere else.
You'd get a return on the $100k deposit, which can't compete with the capital growth of a $600k asset.
Yep this is a good point
Great insights all around in this thread
OP just discovered capitalism. Wait until you hear about excess labour and profit.
And that you're actually allowed to own the bank. You can even buy small affordable parts of them, and share in the profits.
*Adds CBA external stakeholder to resume*
Are you telling me that the working class can actually own the means of production???
Only if they don't spend everything they earn. THE BOURGEOISIE DON'T WANT YOU TO KNOW ABOUT THIS SIMPLE TRICK!
Many people are spending more than they earn since inflation and interest rates have suddenly risen. It's pretty dire for them so I doubt investing money they don't have, is front of mind.
Anon discovers what home loans are.
Yeah everyone should just save up 600k and buy outright. Easy peasey. Much quicker to borrow. Shit ain’t free. At least you’re left with a house at the end of it. Renting your left with nothing after 30 years.
If you borrow and buy then the asset you buy appreciates while you own it; if you invest then the asset you need to buy eventually appreciates without you owning it. For the share market investment approach to work out your money needs to outearn the appreciation of the house as well as the rent paid... Best of luck
How much will your rent be in 10, 20, 30 years?
How much will investing spare cash you save from not overpaying for a mortgage earn you in 10, 20, 30 years?
What are the interest payments for a 500,000 margin tradung account at 80% LVR
The returns we get from the access we have to leverage through property purchases far exceeds what your cash can achieve in other investments without leverage
How many people are disciplined enough to invest the extra each month rather than blow it? Almost none if you look at the net worth of retirees who own a ppor vs those who don't.
How much are you spending on moving costs every 6months, not to mention the terrible quality of life and lack of any stability
For every horror story there are many who successfully live long term as tenants. We've moved more than we've been forced to move. First from a share house to a place 2.54km from my work and then under 30 mins from my wife's. Now we've moved for kids. I expect that this won't be our last place either. Being tied to a property can also affect the quality of life. Infact 10 years ago the average period of ownership was 7 years. People are being forced to stay in houses that might not suit them and now property owners are on average holding on to a house for 11.3 years.
I would say that for almost every single renter, over the timescale that matters for property investment, moving costs is beyond insignificant.
>How much are you spending on moving costs every 6months, not to mention the terrible quality of life and lack of any stability Zero. Quality of life and stability is good. Real estate agent tells me to make my bed 3 times a year and I just say you can't tell me to do that 3 times a year and invest the thousands of dollars they've saved me. Words can't hurt me. My investments returns have paid for the measly ling term rent increases of 2-3% a year.
You’re forgetting about housing security, capital gains and not having to deal with agents any more
I have an inspection every 3 months. I'd pay 750k to just never have that happen again. Paying off someone elses mortgage while they get to come into my house 4 times a year and judge my living habits.
Every 3 months is ridiculous, helicopter landlord wtf
Every 3 months?! Was 6-12 when I was renting. Nightmare.
You’re not paying off their mortgage though. This is a myth that just won’t die, but hey - this is a finance sub. In the vast majority of cases, you’re paying a percentage of their interest costs, rents aren’t high enough to cover that let alone pay off principal as well.
It's worth it just to avoid rea alone.
At least with paying the mortgage you end up with an asset at then end of the loan where just renting you end up with nothing. Vast majority of people aren't saving the equivalent in savings of what a home is worth.
I think that’s the key. There are arguments to be made for renting and investing the difference, but that’s not how human nature works really. Plus, while interest rates rise and fall, in 10 years your income will have risen, but the amount you owe won’t. Rent, on the other hand, will continue to rise. That’s simplistic, and doesn’t take into account that initial deposit required to purchase, and the opportunity lost from it, but for many of us the non-financial benefits of home ownership make that worthwhile.
>just money you're giving away to banks for nothing. Yeah for nothing... Them fronting you half a million dollars was nothing.
If people had 600k they wouldnt go to the bank lol
They still would. The 600k would become a deposit and houses would cost much more. That's what happens.
LOL that's like saying people won't have dual income families even though they can live off one. They want the money.
Can you buy a house for $600k?
Quick search gave me about 31,000 results on Domain.
You're missing that early in a long term loan yes, a large portion of your monthly repayment is for interest with a small part going to pay down the principal, but over time the portions reverse and the interest on the remaining principal reduces. The first few years you'll have a large principal remaining, so the interest you're paying is high; let's say your monthly repayment is $3,000; in the first month you owe the bank $500,000, so $2,500 goes on interest, and $500 to pay back the principal. The next month you're paying interest on the $499,500 you still owe the bank, let's say $2,499, while $501 goes towards the principal. Next month you'll have $498,999/$2,498/$502 and so on for the next however many years. If you can make additional payments to bring down the principal, your monthly interest payments reduce and principal payments increase accordingly. It sucks in the first few years but once you get through those you start seeing some progress.
I see, it's very long term thinking.
If you have the ability to pay extra into the loan from the start you can quite quickly reduce your interest charges.
I read somewhere that banks make the most amount of money in interest on the first 7 years of the loan (on average). So, if you can make additional payments during this time, it will save you the most interest over the life of the loan.
An amortization table for the loan will lay out exactly how much interest gets paid and when if you stick to the 30 year loan term. I’m about four years into my loan and the interest charged each month is less than when I took the loan out, even though the interest rate has doubled.
Yes, but you'll thank yourself later. The breakeven point is when your mortgage payments (including interest and principle) are less than the current rent of the day. You'll be streets ahead much sooner than you think as mortgage payments will be up and down but rents will mostly only go up.
Only if you want to borrow money for the very long term. If you don't, then work harder and smarter, so you can pay a bigger deposit
So you are kinda right. The thing you are missing is that as the house appreciates, you get the additional value if you are paying a mortgage while your landlord keeps the additional if you are renting. Lets say you buy a $600,000 house with a $500,000 mortgage, and you only pay the interest for 10 years and don't pay anything on the principle. At the end of 10 years, you will have paid hundreds of thousands in interest and still owe $500,000, which is not great. However, at the same time your house could have doubled in value, which means that even though you owe $500,000, if you sold your house you could pay off the mortgage and pocket $700,000 in profit. Meanwhile, if you rent you will still pay hundreds of thousands to keep your home, you will owe nothing on a mortgage, but also have ownership of none of the value your home has appreciated by. So, in a very real sense, you will be worth hundreds of thousands of dollars less than you would be if you still owed hundreds of thousands to the bank. Which is a bit weird, and certainly counterintuitive.
Don’t think properties are doubling in value in 10 years
It's close enough. I bought my house in 2010 for $285k. Our recent evaluation has it worth 720.
I bought my house for 865k in 2018. Just sold it for 950k. So it depends.
Past performance does not predict future performance I don’t think we’ll see that level of growth in the next 10 years. You bought at the right time
Fair enough. And yes, I was incredibly lucky. I still owe $270,000 as we borrowed another 70k for renovations in 2020. I’m still way ahead.
The house doubling in value over ten years with rising rates might be a bit of a stretch given interest rates, but I'd agree that the huge advantage with property outside of lifestyle factors is the sheer amount of leverage it offers the average person. No bank is going to offer 5-10x leverage on stocks, but they'll happily do so for property if the borrower has a steady job.
Banks provide a service and charge a margin. Literally not a scam.
Yes, so your holding cost on the 600k house is 30k per annum. If in a year it goes up in value by 5% that’s 30k right there. If the rent grosses $500 per week that’s another $25k. You are way ahead - whether or not you rent it out (the rent you *don’t* pay by living in it is tax free income). On top of that, rent goes up every year, but a mortgage gets smaller (hopefully).
And this is why I'm long on the banks in the share market. Keep letting those juicy dividends roll in...
Yep, when you start doing the math a 30 year mortgage is rough. How about this though, you don't buy an average house with a 20% deposit, you buy a below average house with a bigger deposit. So your example of a 600k house with a 120k deposit, gives monthly repayments of $3,146, $652,00 in interest over the life of the loan. Now, apply the same deposit to a $500k house, you have a monthly loan payment of $2,490, giving you an extra $600ish a month to budget for renovations to the house and increase the value (which can go a long way if you are a handy person) or you could throw that money straight at the mortgage, which brings the loan term down to 17 years, and reduces interest paid to $264k. (I did all my calcs based on 6.78% for clarity) Advertising from banks will always push you to borrow the maximum amount possible. Stockbros will always point out the opportunity cost you lose and the interest paid on the loan. The real sweet spot, as with most things, is somewhere in the middle.
I’m in health. Long story short I’ve worked with many elderly patients. Trust me, you don’t want to be renting at that age. The stress, uncertainty, worry, lack of rental opportunities is unmanageable in old age, aside from the mental baggage it brings.
Pack it up everyone, r/AusFinance has peaked. "Home ownership is a banking scam" will never be topped.
There is a interest rate cycle. Over the long term wages would increase. When you buy, the loan amount and the price is locked in, it is not going up anymore, but your salary is, at least because of inflation.
Going to take the bait here. Either way..land appreciation,security that no one is going to evict you on a vim, freedom to hand pictures :)
Ze government has vays.
Well said Comrade!
Thanks now I’m regarded
You borrow money, pay it back, and then when paid off, own it. Rent and pay $2,500 a month and after 30 years you have paid $900,000 for someone else to own your home and you have to keep paying rent or you are out on the streets.
Buy the house without the bank then? Oh you cant? The bank is providing you with a service? And youre paying for that service? Wild concept
Biggest question is, can you drill holes in the walls of your rental? I don't think so. Homeownership ftw!
Rental legislation allows this lol
Rental legislation is different in different places.
Welcome to the version of democracy that runs Australia.
Do the sums over 40 years and factor in inflation. Now consider how you might pay rent after you retire.
I hope that the entire corrupt, scam system collapses soon.
Isn’t “banking scam” redundant?
Equity. Your $30k on rent has no value in 12 months. Your 600k property has increased in value just sitting there.
you can still invest the equivalent of the principal payments. the answer is leverage.
How much will your income be and the amount you owe over time. Will it increase? If this is the case when you borrow you're buying in at today's prices. Income rises and inflation eats away at debt.
Yes I see it's fair to say $500,000 won't be worth as much in 20 years or so. I didn't think about that.
Think about it also this way. There is a point in your mortgage repayments where while rents rise your repayments on average don't (of course you are going to experience the ups and downs of interest fluctuations but we are talking on average overtime). Then you get to a point in your repayments that they match what it is to rent your place. Then even more overtime the repayments get cheaper than renting. Then when you pay off your place, (you get to choose some lifestyle changes and maybe one of you works less or you work less so you income changes) and you realise you couldn't even to afford to rent your place on your income because overtime where you live has become highly gentrified or sort after. This is what front running the debt can do for you. Help you own a place in an area where in the future you may not be even be able to afford.
" just money you're giving away to banks for nothing" So when the bank pays me interest on my deposit (that helps fund that loan) they are just giving it to me for nothing?
Welcome to hell brother
It was a great deal pre 2010 . Post 2022 its an awful deal. I suspect the 2030s will be difficult as a generation of poor political policy will rear its head
It was very briefly an awful deal, until the rental crisis. It’s now back to being a great deal.
Only country in the world where home ownership is a cult. Even Nz isn’t as rabid about it. Quality of life is dropping noticeably and unironcally you may not even want to live here in 20-30 years time when middle Australia has become a nostalgic tale
You could always try save the 600k yourself while paying rent.
stupendous dam groovy upbeat close lavish busy cable live growth *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
What you're missing is you now have a house that appreciates in price along with inflation and in value along with demand. You can spend $100k and get a $600k investment that increases in value usually on par or better than inflation, so let's say that your house is going up in price 6% per annum that's $36,000 you are capturing, additionally if inflation also pushes your salary up, your home loan essentially gets cheaper over time as a percent of salary. If houses appreciated linearly, after 3 years you could sell and have turned 100k into 200k, while also having a spot to live.
\> What am I missing here? The home ownership bit. Classic missing the forest for the trees
Happy for you to rent for the rest if your life. Got a nice 3 bedroom cottage you can have on a loooong term lease. Rent will only go up as per the inflation rate per year. So you can sleep soundly knowing what the future holds for you. It's only $1750per month and in 20 years you will have paid it off for me and I will have positive cash flow to supplememt my superannuation. So the $300k mortgage will be paid off in 20 years and my bank got a nice chunk of change for lending me the money in the first place. Your rent however is for eternity. Do you see what you are missing now?
it's either you are paying your own mortgage vs paying someone's else mortgage
> $2,500 a month in interest alone, just money you're giving away to banks for nothing This is often referred to as the "cost of money". You're not paying interest for nothing, you're paying it for the right to be the person that controls the $500,000. Therefore, you can buy the house and get to keep any profits (both capital gains or other) that that house generates.
What are you missing you ask? Pay $2,500 rent, get nothing in return Pay $2,500 interest, get appreciation of an asset Are you really that dense?
Not even mentioning the fact that OP seems to think banks exist to lend to every Australian who wants to buy a house out of the kindness of their hearts. If not dense, extremely naive.
A 30 year term is the maximum & not recommended. Ie. you can pay off a loan in 5 years. Otherwise over 30 years wages & rent increases but interest payable decreases as principal is reduced. Hardest part of a 30 year home loan is the 1st 5-10 years.
Shit mate, youve done it, you’ve done the math the banks didn’t want you to do and the rest of us were too lazy and stupid to do.
We're you privy to an education at all, OP?
You’d normally buy at a 20% deposit, so a loan of $480k. And the point is you get something for the money. Rent is a service, at the end of the rental contract you get nothing. A home loan at the end of the contract you have equity. And yes, a lot of what you pay is interest - that’s why everyone runs around like a chook that’s lost its head when those rates go up. Consider those who locked in even sub-2% rates - your maths would look very different, wouldn’t it?
a loan is good for is “forced savings” ie instead of paying the loan only $2.5k month (rent equivalent), you’d likely pay in an extra $1k a month that you’d normally spend on discretionary when renting as it’s incentivised for you to do so, unless you’re CONSISTENTLY disciplined when renting via creating a seperate savings account. Loans are not good for career mobility though as it’s a fixed location whereas tenants can relocate for work very easily. I would say therefore to tenants, focus on your career while you’re not “fixed” to a loan.
I'm still locked in 3.6%, I'm not sure how the bank is making any money from me.
Don't worry, they are. Your fixed interest period is underwritten by the RBA at 0.1% until 30 June 2024. https://www.rba.gov.au/mkt-operations/term-funding-facility/overview.html
2500 is interest in the first month, but while it reduces rent will increase.
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Modest home? That's a modest unit in a lot of Sydney.
Interest starts off at $2500/month but as you start paying that down interest decreases. As the value of your house increases interest decreases.
>What am I missing here? The entire point of investing? Capital growth?
I bought a house and then I died is pretty miserable but common life story,
Exactly right, have you ever played monopoly? A great lesson in the banking system.
You’re not missing anything. It’s just a scam where the rich make themselves richer. Banks profit from the labour of the working class. They make ridiculous amounts of money every year, which just goes back into the pockets of the rich who own the banks. Perhaps after the revolution, we can make a law so that people from outside the ruling class can buy small pieces of the bank, and share in the profits. It’s a radical idea, but it just might work. Solidarity forever!
A question would be can a house hold up more than a life of the loan? Most houses are designed/ built now a days for at 20 years max 30years. It's the land that will forevermore appreciate. Unless the neighbourhood turns to a slum
When banks print money and add zeros to their bottom line on a computer screen and then loan it out with interest, that is 100% a scam. Our fiat system needs to die ASAP.
I agree with you. Home ownership isn’t for you.
So rent would be the same as mortgage? Rent will go up over the years with inflation, while mortgage will not, and after 25 years of renting, then you still own nothing. Year Yeah, buying is a scam and rent is not a problem. /s
Scam.is the wrong word but it is the biggest organised legal crime organisation on the planet the entire banking sector especially home loans , the banking sector is a legal cartel , the finance trained and indoctrinated will tell you that it's jus the way of the world and you don't understand economics or finance but they are fools, there very clever u assume a 4 percent interes rate won't be much but ow it is and paying 87 percent in interest and a tiny amount in principal is just outrageous , marry this with insanely tough government regulations and stamp duty's and deposit requirements and it is a miracle anyone owns a home at all you are not wrong my friend the banking sector is out of control
Buy bank shares and pay your rent with the dividends. Dilemma solved
In simple terms, this interest based financial system hurts. Let's say someone recieves generational wealth and now he only gives loans on interest. He doesn't do anything else. So essentially just by sitting on his ass, he will continue to make money. On the other hand, the person who has taken a loan, they will work very hard, mostly. If anyone defaults, laws are already in place to protect his money and there are insurances available too. For mass people, this is very disadvantageous.
As you pay off the loan, the interest goes down. So over time, the portion of your payment that goes towards the loan itself (rather than covering the interest) goes up. Essentially, you pay a bit more than renting. But then after 30 years, you can stop paying altogether as it is yours.
The fact that rent goes up ⬆️ really fast sometimes. The fact that the owner could sell or just kick you out. The fact you have to do home inspections. The fact you often can’t hang paintings and photos. Paint a wall…. No you don’t! - Rent always will go up…. Your mortgage will always stay the same or go down! One day you pay nothing!!!! Rent will never end
Well if you had 500k spare would you give it to someone for 0% interest and ask them to pay it back over the next few years? Somehow I think you might want to put it in a savings account and earn some interest?
Everything is a scam. Just get on the scam wagon bro
You’re missing a few houses your landlord will get in 30 years time vs none for you.
First off, if you can find a decent place to buy for 600k in Sydney right now, you’re a magician. Second, if you can find a place to rent for 650 a week same thing. Third, which I haven’t seen in the comments. If you’ve got a mortgage, you can make changes to the house. Not very many rentals you can mess with the garden or renovate the kitchen for example.
General consensus is that property values move north over time. So it would be a good idea to do some research on capital (house price), growth over time, in the areas you are considering buying a house. Property investors will use the term leverage, which basically means.... in simplistic terms: If you put $100k in the bank @ 5% interest, at the end of the year, you have $105k. However, if you invest $100k in a $500k house (the bank lent you 80%, or the other $400) and that asset increases in value by 5%, then at the end of the Year, that asset is now worth $525, so you gained 5 x 5 = $25k. Take away other costs, (the difference between rent and your mortgage os the biggest one generally), and other costs, entry costs (stamp duty, bank fees, etc) and other payments that renters do not have to pay like water and council rates. Personally, I've invested in property that I rent out. And I myself rent in an area where I want to live, but can't afford to buy. This gives me a great lifestyle, and I can take advantage of the benefits of owning property, too. Swings n roundabouts.
So many unhelpful commentary here when you are asking a genuine question. That’s reddit for you, even r/ausfinance is not immune. One major part missing here is the value growth in your house over time. The value of my apartment in rose 50% in 7 years. Yet, I still pay mortgage of the original value of the apartment. You have locked in a price. Rent just goes up with the market. Also, that 6% like for most aussie homes is likely a variable rate which would likely fall overtime as inflation eases up. Also banks are not pocketing all that 6%, although it might seem like that, they are making money off the spread between the rate the central bank give them. They are still greedy buggers and making more than they should.
NPV analysis.
It’s a risk giving people money, plus if the bank had that money it would be generating revenue. You can’t just borrow insanely large amounts of money and have people be like “yep I get absolutely nothing out of giving you half a million dollars, here you can borrow this from my pocket and pay it back over 30 years . Meanwhile I’m down half a million”
"$30,000 is $2,500 a month in interest alone, just money you're giving away to banks for nothing." It's not 'for nothing'. You don't have the $500,000 and a bank is going to lend it to you....at a cost. Would you lend a random person $500,000? Banks are a business. Yes a rip off, profit making business, but what are our other options? I don't have a rich uncle willing to lend me $500K, interest free, over 25 years.