I'll Huff and I'll Puff And I'll Blow Your Home Loan Down!

Its time to settle down.......

I've recently given some thought to buying a house, because everyone is doing it, so it must be cool. Nothing like having a place you can decorate and drive nails through the walls. And because its not like buying a kebab from the cornershop, I decided to sit down to do some Math about its feasibility.

Let's assume we wanna get a place worth $280,000 (which is equivalent to a one bedder in the city, although we could get a mansion for the same price in the middle of Marrumidigee, Northern Territory).

drrre-e-e-eam....dream...dream...dream.....

Taking away the 10% downpayment and First Home Owner's grant of $7,000, we'll be left to pay $245,000, which, surprisingly, we do not have and will have to resort to a loan from the honest banks in Australia.

Using the loans and repayments calculator provided by InfoChoice, and for the loan to be paid out over 25 years, we will frugally (is there such a word?) request from the honest banks a loan of $250,000.

Given the current interest rates of about 7.30%, the calculator told me we will only have to pay $294,523.43 worth of interest into addition to my principal loan of $250,000.00, making a grand total of only $544,523.43. Nothing much really, only half a million dollars.

money.money.money. must be funny. in a rich's man world.

Opps, I forgot to add the quarterlies that we have to pay because we will be living in an apartment (no more affordable houses in the city), say about $800 per quarter over 25 years, and that equals to an extra $80,000.00.

Which means after 25 years, we would have ended up paying about $624,523.43 for a unit advertised at $280,000 !!!

So our monthly repayments will come up to $2081.77 ($1815.08 + $267 for the quarterlies) and that would be $480 per week. Ok it may not look like its so much if I share it with Matt...but what if I look at it this way.....

We decide not to buy a home.
We continue renting for the next 25 years at $380 per week (I have allowed for rent increases, we are paying less than $380 per week now, $380 is a 30% increase)
We would have paid $494,000.

cos we are living in a material world, and I'm a mer..mer..mer material girl....

If we put aside the 10% downpayment and $100 saved per week into a high interest savings account for 25 years, at the current interest rate of 5.85%, we would have saved $415,488.03. From the 25th year, the amount saved would yield $2030.28 of interest per month, which can go towards offsetting the rent. That would mean we could possibly go virtually rent free in 25 years and still have about $400,000 in reserve for emergency use. And that is just a modest projection considering both of us would also have our personal savings plan of between $100-$200 per week, yielding the same return for us in 25 years. Of course we have to take into consideration that the interest may be taxed, but the tax would be paid off with our day to day accounts while this savings account will remain untouched.

Now at the 25th year we would have about $415,000 in reserve. For the unit to match that, it must have risen by about 48% of its original value. Given the current climate of Sydney's housing, I predict it is very unlikely for any city housing prices to increase to that level!

As for now, its time to start saving and buying more regular Lotto!!!

My dream house! Only a mere $2.2 mil!