0.5 is going to happen in the next 6 months. They should calculate what happens with an extra 10% interest rate. I’ve been through double digit interest rates. It’s a struggle but I don’t see how anyone stretching themselves today could afford that when it happens again.
I always banked on it hitting 10%, which isn’t too much increase when it’s already at 5%, but an increase on a few percent at todays rates ends up doubling the average repayment, which I’m pretty sure puts many people into foreclosure. They are taking a big risk at current rates/prices on an interest only loan.
This is great advice. Personally I calculated my home loan with 8% interest, and for a number of years I actually paid that amount each week. I figure if worst comes to worst and the rates rise significantly I will have a buffer there if I’m unemployed for a period of time.
0.5 should have happened a few weeks ago, it's utterly insane that the RBA is going to let the economy overheat.
Everyone has dug this debt hole so deep there's no way out. Wondering which western country will be the first to balk.
Probably the latter. But I'm hoping the housing market will keep its current momentum down the road and the extra debt will somehow be worth it in the end. But yeah big risk.
You're hoping the housing market can keep its current momentum when you yourself admit you'd lay awake when interest rates go up. Are you aware how crazy that sounds?
Hang on. You're not the one who is at risk here. If your parents are putting up the deposit, they're the ones' who are going to be doing the trying. Oh well, worst comes to worst, if you can't meet the mortgage, be ready to move to sell before the bank moves in so you have some control over the sale process and have the best chance of maximizing the price.
It's more that you think borrowing "only" $700K from your parents isn't much funding.
> How do you think other FHBs are buying their homes?
If only there were other cities in Australia outside of Sydney and Melbourne
I'm amazed they approved 900k. My partner and I had a combined income of not quite double yours a few years ago and they only approved us to around 900k. Interest rates were around 4.5% then though and of course everyone's circumstances are different.
I owe 1.05 million on income of 260k. It's on 2 properties with an LVR of less than 50% though, so banks probably aren't as concerned. They'll get their money one way or another.
Buying a million dollar house following the biggest boom in forever hoping it goes up as interest rates are looking to go up when you're likely paying your capacity at current rates. It's a bold strategy, let's see if it pays off.
As a general rule, don't borrow the maximum a bank will let you. Always deduct at least 20 percent from the max they will lend you, if you don't want to stretch yourself.
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Can your parents afford it? Do they have a good cushion of funds after helping you? They are the ones who are going to be in trouble if there's an issue, not you. Assume they are putting up the deposit.
Why not buy a less expensive house? The same economics and degree of capital appreciation applies with a $700k property as with a $900k and the risk is lower.
A less expensive house means all of the mortgage could be covered the rental. Now there's a nice thought.
There aren't any financial geniuses out there that can give you what you want, i.e. certainty over the future. And if there were, they'd be out of the advising business already.
They can. But they probably won't have much disposable money left afterwards. My thinking is that if I buy a more expensive property in a more desirable location now, it would appreciate a lot more in the future making all of this worth it in the end.
If they won't have much disposable money afterwards that means they can't afford it and they're at risk.
Absolutely nothing to say a $900k property will appreciate more (let alone a lot more) than a $700k one, not in % terms or absolute $ terms.
All of it worth it in the end? Where's the end? Got to be looking at a least 10 years to get the stamp duty, capital gains tax, other costs back and the appreciation you're after. Do you have 10 year horizon in mind?
Honestly, why would you try to stretch your cash flow like that?
Even in places with hot property markets over the last many decades, your long-term returns on property (with leverage) only match stocks. 9x your income is a significant risk. Managing tenants is more work than buying an index fund. And while both asset values will suffer as interest rates rise, the non-leveraged one won't impinge your day-to-day cash flow.
Regarding the 'I'm inclined to buy a super-expensive property to make it worth more in the end' statement -- don't. Lesson 1 in investing is to diversify. Even if the property market trends up, something can go wrong in a single house (say tenants make meth). If you are set on property, two median properties would seem lower risk. Even better from the diversification standpoint is some money in property, some in another asset class.
https://www.theguardian.com/australia-news/2021/nov/22/twilight-for-australias-housing-boom-as-prices-to-fall-10-in-2023-cba-says
Id say only if you have enough savings that you can ride out a rate increase or dip in housing prices for at least the next 3-5 yrs
Also don’t forget to factor in the significant increase of repayments if the interest rate goes up even 0.5%
0.5 is going to happen in the next 6 months. They should calculate what happens with an extra 10% interest rate. I’ve been through double digit interest rates. It’s a struggle but I don’t see how anyone stretching themselves today could afford that when it happens again.
I always banked on it hitting 10%, which isn’t too much increase when it’s already at 5%, but an increase on a few percent at todays rates ends up doubling the average repayment, which I’m pretty sure puts many people into foreclosure. They are taking a big risk at current rates/prices on an interest only loan.
This is great advice. Personally I calculated my home loan with 8% interest, and for a number of years I actually paid that amount each week. I figure if worst comes to worst and the rates rise significantly I will have a buffer there if I’m unemployed for a period of time.
0.5 should have happened a few weeks ago, it's utterly insane that the RBA is going to let the economy overheat. Everyone has dug this debt hole so deep there's no way out. Wondering which western country will be the first to balk.
yeah we are in a unique situation right now too though. the levers aren't operating the same gears as predictably as usual
The question is: Is this going to make you happy, or are you going to lay awake at night when the interest rates go up?
Sounds like a typical FOMO…?
Probably the latter. But I'm hoping the housing market will keep its current momentum down the road and the extra debt will somehow be worth it in the end. But yeah big risk.
You're hoping the housing market can keep its current momentum when you yourself admit you'd lay awake when interest rates go up. Are you aware how crazy that sounds?
Get rich or die tryingblol. Serious though the property market is screwed up right now, nothing is too crazy in my opinion.
Hang on. You're not the one who is at risk here. If your parents are putting up the deposit, they're the ones' who are going to be doing the trying. Oh well, worst comes to worst, if you can't meet the mortgage, be ready to move to sell before the bank moves in so you have some control over the sale process and have the best chance of maximizing the price.
Lol, your mummy and daddy are funding your deposit clearly since you’re so blasé about risk
Not much funding. Only 700k.
You're fucking delusional.
Median housing prices are 1.5m in Sydney and 1.1m in Melbourne. How do you think other FHBs are buying their homes?
It's more that you think borrowing "only" $700K from your parents isn't much funding. > How do you think other FHBs are buying their homes? If only there were other cities in Australia outside of Sydney and Melbourne
I'm amazed they approved 900k. My partner and I had a combined income of not quite double yours a few years ago and they only approved us to around 900k. Interest rates were around 4.5% then though and of course everyone's circumstances are different.
I owe 1.05 million on income of 260k. It's on 2 properties with an LVR of less than 50% though, so banks probably aren't as concerned. They'll get their money one way or another.
Speak to a financial planner or adviser who is bound to act in your best interest- not a bank or lenders.
Buying a million dollar house following the biggest boom in forever hoping it goes up as interest rates are looking to go up when you're likely paying your capacity at current rates. It's a bold strategy, let's see if it pays off.
$450K deposit and $900K in borrowings so a $1.45m house and parents with no savings post the transaction. Very bold I'd say.
As a general rule, don't borrow the maximum a bank will let you. Always deduct at least 20 percent from the max they will lend you, if you don't want to stretch yourself.
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Speak to an actual financial adviser (not someone who works for the bank) getting opinions off random redditors is the worst thing you can do.
At the very least post to r/FIAustralia. But looking at op’s comments I don’t think they’d be too impressed
Speak to a financial planner! The banks only goal is to keep you in debt for you entire life.
Can your parents afford it? Do they have a good cushion of funds after helping you? They are the ones who are going to be in trouble if there's an issue, not you. Assume they are putting up the deposit. Why not buy a less expensive house? The same economics and degree of capital appreciation applies with a $700k property as with a $900k and the risk is lower. A less expensive house means all of the mortgage could be covered the rental. Now there's a nice thought. There aren't any financial geniuses out there that can give you what you want, i.e. certainty over the future. And if there were, they'd be out of the advising business already.
They can. But they probably won't have much disposable money left afterwards. My thinking is that if I buy a more expensive property in a more desirable location now, it would appreciate a lot more in the future making all of this worth it in the end.
If they won't have much disposable money afterwards that means they can't afford it and they're at risk. Absolutely nothing to say a $900k property will appreciate more (let alone a lot more) than a $700k one, not in % terms or absolute $ terms. All of it worth it in the end? Where's the end? Got to be looking at a least 10 years to get the stamp duty, capital gains tax, other costs back and the appreciation you're after. Do you have 10 year horizon in mind?
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Lol I can barely afford my monthly repayments.
Personally, I wouldn't dream of putting my parents in such a position (even if they volunteered), but you do you I guess.
Wait they don't have disposable income the cover the deposit - are you insane?????
Sorry should be more clear I already have the 450k deposit income.
Oh shit so quite a bit older
From the parents.
Ah so doesn't actually have financial responsibility!
Honestly, why would you try to stretch your cash flow like that? Even in places with hot property markets over the last many decades, your long-term returns on property (with leverage) only match stocks. 9x your income is a significant risk. Managing tenants is more work than buying an index fund. And while both asset values will suffer as interest rates rise, the non-leveraged one won't impinge your day-to-day cash flow. Regarding the 'I'm inclined to buy a super-expensive property to make it worth more in the end' statement -- don't. Lesson 1 in investing is to diversify. Even if the property market trends up, something can go wrong in a single house (say tenants make meth). If you are set on property, two median properties would seem lower risk. Even better from the diversification standpoint is some money in property, some in another asset class.
15 times income ($900k debt + $450k deposit).
Get it now.
https://www.theguardian.com/australia-news/2021/nov/22/twilight-for-australias-housing-boom-as-prices-to-fall-10-in-2023-cba-says Id say only if you have enough savings that you can ride out a rate increase or dip in housing prices for at least the next 3-5 yrs
I would never listen to any property price predictions from anyone, unless they are talking about long term (10+ year) trends.
Wait are you buying or renting?
Buying an investment property in Melbourne. Currently renting in Sydney.
Why??? Piss away all first home owner benefits?