Should I buy a house?

[nitroman]

I've rented all my adult life, and had a good time while doing it (lots of travel, motorsport,fast cars,motorcycles, sex drugs n' rock and roll etc) Now I'm in a situation where I have a partner with a baby due anytime now, and a two year old boy, and the owners of our house have decided to put our house on the market. The message is buy it or get out! The price is $205000 which is ok in this market, but repayments are $350 a week plus! I'm paying $200 a week now in rent, but that extra $150 might push me over the financial edge.
Is it worth it?

[TUF_302]

If you can afford it,yes buy, if not dont!

[Outbackjack]

If you are able to buy it make sure that you get a fixed interest loan for at least 5 years. I predict that interest rates are set to come close to doubling in the next 5 years. If you buy you will be much better off in the long run.

[bob 351]

yes you should it is a big step but if you do everything the right way you will not regret it,s the best investment you will ever make

[Gobes32]

Originally Posted by Outbackjack

If you are able to buy it make sure that you get a fixed interest loan for at least 5 years. I predict that interest rates are set to come close to doubling in the next 5 years. If you buy you will be much better off in the long run.

Why go you think that will happen?

[Outbackjack]

Originally Posted by acosta32

Why go you think that will happen?

Every economic pointer is pointing that way. The ONLY thing that is going strong in the Australian economy is the primary export industry (raw resources). When they slow down, and they will, there will be carnage in the economy. But I hope that I am wrong. Time will tell.

[Casper]

Originally Posted by Outbackjack

Every economic pointer is pointing that way. The ONLY thing that is going strong in the Australian economy is the primary export industry (raw resources). When they slow down, and they will, there will be carnage in the economy. But I hope that I am wrong. Time will tell.

How will a slowing economy raise interest rates? Unless we are talking about Stagflation, which does not seem likely and shows no signs of reappearing, the most likely scenario for a slowing economy is that jobs will be lost, buying "power" reduced, inflation reduced and therefore interest rates reduced as a classic government aid to kick start the economy again. I doubt interest rates will climb much more than another 0.5% in the next 5 year.

[nugget378]

Originally Posted by acosta32

Why go you think that will happen?

Because labour will win the next election :P

[robjh80]

Originally Posted by nugget378

Because labour will win the next election :P

"Just like watching History Repeating isn't it"

Interest rates always go through the roof when a Labour Govt take power, the good times of the current low interest rates will be over for some time I imagine.

[4.9 EF Futura]

Originally Posted by Outbackjack

If you are able to buy it make sure that you get a fixed interest loan for at least 5 years. I predict that interest rates are set to come close to doubling in the next 5 years. If you buy you will be much better off in the long run.

Agree - if you can afford it, do it. (Especially if you're going into perth lol).

Dont agree with the prediction regarding interest rates.

A cursory glance at the yield curve suggests it is almost flat. If there was a reasonable probability of the cash rate doubling over the next 5 years... would the major banks be willing to fix the rate for 5 years at 75 basis points BELOW the current standard variable? i.e. go to 5 years fixed and you'll be paying 3/4 a percent less than the current standard variable rate. Lol, that's the market collectively saying it believes interest rates will be coming down.

But fixing interest rates is not just a matter of 'betting' on where you think rates are headed. Because the market (the banks) will have priced in the most likely outcome (the position being taken by the market). If that's the same outcome you believe to be true, then the benefit is eroded. No free lunch in the market.

Something like 30% of new fundings at the moment are in fixed rate. But how many people who are currently fixing their rates understand the implications of the yield curve? Lol, socialists obviously dont count, not "believing" in the market forces which drive the yield curve. But what of people like my mum? She just bought a house for herself and proudly announced she had fixed the rate for 3 years. When asked why the decision to fix rates was made: "because its lower than standard variable". Personally i think the 3 year call is not a bad one... but dont know if people are doing it for the right reasons (i guess that point is somewhat academic). 5 years at 7.25% tho... im not so sure.... and outbackjack could probably excercise more caution in stating such firm financial advice.

If you can get 5% deposit (which should be easy with the $7k first home owners grant to help you out)

Kiss the homeowner's grant goodbye before the loan money has hit your aco****! Mortgage insurance, stamp duty, legal fees > $7k easily. 5% deposit still borrowing @ 95% LVR!!

[Outbackjack]

Originally Posted by 4.9 EF Futura

and outbackjack could probably excercise more caution in stating such firm financial advice.

Hang on a minute.... I used the words "I predict" others used the words "NO WAY" . Now you tell me who's advise was so firm?

I stand by what I said, take it or leave it. It would seem that lots of people are living in a situation where the future is going to be what they HOPE it is going to be and make plans accordingly. Not very wise.

One of the factors driving powerful pointers in the Australian economy is driven by over seas situations. These situations are very volitile and prone to worsen.

[4.9 EF Futura]

Originally Posted by Outbackjack

Hang on a minute.... I used the words "I predict" others used the words "NO WAY" . Now you tell me who's advise was so firm?

Simply based on the following comment OBJ:

"If you are able to buy it make sure that you get a fixed interest loan for at least 5 years."


I am merely advocating careful consideration of such important financial decisions. Nothing against your recommendation OBJ, no one is "right" or "wrong". But all views should be taken with a proverbial grain of salt.

[Deadman]

Originally Posted by nitroman

but repayments are $350 a week plus!

If you can get 5% deposit (which should be easy with the $7k first home owners grant to help you out), you should be able to pay less that $310 a week. While still retaining the ability to pay extra and redraw those funds (without penalty), have an offset account and fix your loan - if you shop around for the right loan.

Originally Posted by Outbackjack

I predict that interest rates are set to come close to doubling in the next 5 years. If you buy you will be much better off in the long run.

Well, I'd also say fix your loan, but only for 3 years. There is no way interest rates are going to double in the next 5 years, and you don't want to lock yourself in for 5 years esspecially if (and when) they start coming down in 1 or 2.

my 2c

[loxxr6]

Originally Posted by Deadman

Well, I'd also say fix your loan, but only for 3 years. There is no way interest rates are going to double in the next 5 years, and you don't want to lock yourself in for 5 years esspecially if (and when) they start coming down in 1 or 2.

my 2c

Good point. It's likely we'll see a few more interest rate increases but I doubt you'll need to fix your loan for 5 years, things prob won't get that bad.

If you can afford the loan, do it. You might as well put your money into something you'll end up owning. Worst case situation, you move out, find another place to rent and then rent the home you bought.

[Outbackjack]

Originally Posted by Deadman

There is no way interest rates are going to double in the next 5 years, and you don't want to lock yourself in for 5 years esspecially if (and when) they start coming down in 1 or 2.

my 2c

That is a very brave statement given what is happening around Australia at the moment. But as I said, time will tell. I have 11 properties at the moment, almost 12. 6 of them are paying for the other five and I have just spent almost $3000 getting the loans on a fixed 5 year term. Have a real good look around and then tell us again that "there NO WAY that interest rate are going to double" and by the way I said, come close to doubling.

Once again, time will tell.

[Deadman]

Originally Posted by Outbackjack

Have a real good look around and then tell us again that "there NO WAY that interest rate are going to double" and by the way I said, come close to doubling.

There is NO WAY that interest rates are going to double (or come close to doubling) in the next 5 years. Happy? [editted rest out - really not worth it] I'm not going to get drawn in to a pointless debate on this. That's not what this thread is for and it will derail it.

Good luck nitroman with whatever decision you come to

[mad cow]

i would have to say go for it, the best thing i ever did was buy a house and i reccomend it to anyone. dont fuss about the payments being more than rent (as long as you can afford it) as a loan is over approx 25 years and it wont take long for rentals to overtake your payment amount then you will really reap the benefits (as well as your capital gain). also find out how much your rates are as they are another cost which many people dont allow for. as for intrest rates they are a gamble which ever way you go i personally leave mine on variable as im not worried about them going up a great deal in the future and also i deal with a bank which does not seem to pass on the rate rises. it also sounds like a good idea as living in the house already you will know all its faults and bonuses to allow a better decision. good luck and i hope it all goes well for you.

[XRCISM]

You will be happy in the end if you buy and stop renting (& being at someone elses mercy!) ... but only do it if you can afford it!

[LUXO_8]

definatley buy it if you're in that kind of position....
im currently in a situation where ive realised nearly 10 years of my moeny saving life are behind me and ive swindled most of the cash ive earnt on cars.


im 26(27 late this year) and have a couple of definate goals by the time im 30, to have traveled overseas and to be in my own home. im about to chuck my current job for something that pays a lot better, and once my engine is finished im going to save save save.... im rather dissapointed in myself that ive let myself be in this position, but ah well

[Racecraft]

if you can get a home for 205k I'd jump at it.. Brisbane sucks the wang, 200k wouldn't even get you a townhouse.

Agree with 4.9 EF Futura about the 7k.. It gets gobbled up in sundry expenses and although you DO get it, provided your partner has never owned a home before, the $$ you spend along the way means you are really only re-couping some costs you have outlayed..

And $350 a week is not a lot of coin if you are already paying 200+ rent. Look at it this way, shop around for a home you are happy to live in (as a rental substitute for where you are now) and see what the rent on that property is worth. You might find a nice residence but it is $250 pw. Well it makes the $350 paymentsto own, renovate and be left alone more of an attractive proposition imho.

[robjh80]

Originally Posted by nitroman

The price is $205000 which is ok in this market, but repayments are $350 a week plus! I'm paying $200 a week now in rent, but that extra $150 might push me over the financial edge.
Is it worth it?

Nitro........you are paying $200/Week rent now, but what is that same house going to cost to rent in say 5 years time?

The way the rental market is currently going, record low vacancies, rent hikes etc all over the country, in 5 years that $350/Week your currently considering for a mortgage might be "cheap as chips" in the not too distant future.

What are you going to tell the landlord in 5 years time when the market is demanding let's say $450/Week for that same house?............."I'm not paying that!!"............his reply of course will be "see ya later mate" or something similar,............ if you wont pay it "plenty of others will" if the market dictates that the price the landlord is demanding is indeed warranted.

If you're happy in the house you currently occupy and the owner is giving you the option of buying it at a reasonable current market price and the house is in a good developing area,..........."I would say buy it."

My point being that if you can't afford the $350/Week mortgage now.............then how are you going to be able to afford the rapidly increasing rents that landlords are demanding, "and getting" in say 5 years time?

Cut down on some things to find the extra $150/Week.......nobody says that's it's easy, ask anyone who's "been there, done that"
Perhaps you should lay off the "Travel, Fast Cars, Motorcycles, Drugs etc" and it shouldn't be too hard to find.

[blueoval]

The fact that you have lived in the house for X amount of time, you know it, you like the area, your already settled, and the price for the house isnt ridiculous, I would be inclined to bite the bullet and save yourself some hassle.

Buy the house now, sacrifice some personal luxuries knowing you are the king of your castle.

Lay low financially for the next few years and have a small savings plan you can put away small amounts of cash whether it be $20 a week/fortnight for future holidays, projects, house improvements or whatever over the next 5 years. You can still enjoy life, but enjoy it more humbly, and cheaper.

I think you will find you will cope better than you think.

Moving house is a pain and costs more cash in the end too. Cut your losses now and save yourself the headache.

[XRchic]

Definitely get a house if you can. And I wouldnt count on the home owners grant... it counts for bugger all in the end - we bought a place for $350K in July 2005 (it was an urgent sale and probably worth more) and all of the stamp duty, legals, conveyancer, etc, etc, etc, used up all of the grant and then some... including the deposit, well over $50K by the time we moved in.

Mortgage repayments are always going to be more than you pay in rent unless you go from renting a large house to buying a unit or something... we were paying $300 per week in rent before we bought this place and now we are paying $625 a week off the house. But it is worth it! $350 per week would be nice but I do like the house that we bought, and it was valued last week at $420K, which is good - this is the fastest growing area of the state apparently.

The good things about owning your own place is that you can have pets whenever you want (subject to council regs if you want to have 359 cats or dogs or weird pets like snakes LOL), you can paint your walls pink and orange if you want to, hang pictures up, add an extension if required, wire up your shed, redo the front yard, etc, etc... total freedom.

Also, no inspections. I hated inspections from the landlord/agent - just hated it. Glad to never have that anymore.

It is also a sense of security for the family, knowing we wont get booted out (when landlords decided to move back in one place, we got the boot with a week left on the lease!)...

Outbackjack - that many properties? Im envious! Thats great though! I am contemplating buying ONE investment property LOL. Just working out how CGT will work with all of it, but all good when negative gearing...

Interest rates? Well I had sort of thought they may go up a little over the next few years but not excessively so but I dont really know. I have my mortgage divided into parts with some fixed for longer than others...

Good luck with whatever you decide!

[GTPete]

If the loan repayments are going to stretch your finances then consider a split loan.
You could borrow the bulk of the money on an interest only fixed term. You should be able to get a rate around 6.99% over 3 years. Then take a principal and interest loan on the balance with an intro rate at say 6.5% for the first year.
Try and pay as much off the P&I part of the loan within the first 12 months.

150k interst only at 7% will cost you $201per week.
55k P@I at 6.5% intro will cost you $80 per week.

$281 per week total repayments in year one.

[4.9 EF Futura]

And just another useless tidbit i came across in my daily fossicking.

Adelaide Bank last week launched a "shared equity mortgage" product in conjunction with a company called Riskmark. Bascially, you borrow 80% from Adelaide Bank, like any other normal loan.

The remaining 20% is funded by Rismark (beleived to be funded by Mac Bank money) interest free with no repayments. The catch - Riskmark, for their 20% stake, will take 40% of any capital gain realised in the property.

Very interesting concept IMO... probably do very well in "buy now, worry later" Australian culture.

[Dazza XLT]

I'm in the process of looking for a house. Only one Income, second income will come in 2 years when the missus begins her teaching. We could manage the payments on my income.
Biggest problem I have... On the coast, everyone wants $300k for their run-down crap boxes. Whereas if I was to buy at Merinda, a bunch of houses 10klm from Bowen, I'd pay $300k for a fairly nice brick home on a large block. I've got no problem travelling, as I have the company car.
Only other thing, my missus isn't guaranteed a job here once she finishes Uni, so we could own a house where she hasn't got a chance of getting a job. We'll be able to afford the house on one income, but she needs to start teaching straight after Uni, so she can gain as much experience as possible.
It certainly has got me thinking at the moment! :S

Cheers

Darran

[XR06T]

is the fixed interest rate being offered by banks a reliable indicator in which way the variable rate is going to go?

[Outbackjack]

Originally Posted by XR06T

is the fixed interest rate being offered by banks a reliable indicator in which way the variable rate is going to go?

Usually yes. But even the banks can't predict what is goint to happen someplace in the world. Keep an eye out for the "Straight of Hormuz" in the press. If you have never heard of it, you soon will.

[GRNKPR]

Originally Posted by Outbackjack

Usually yes. But even the banks can't predict what is goint to happen someplace in the world. Keep an eye out for the "Straight of Hormuz" in the press. If you have never heard of it, you soon will.

????? oil or land or war ???????

[Grasshoppr]

As stated by others speak to as many finance people as possible to get yourself into the house. Renting is dead money thats one certainty!!

In regards to fixed or variable there was a report in Investment Property Magazine which showed that for the last 20 years you are actually worse off by fixing your rate! Fixed rates serve a purpose (heck I am on one now for my investment property) but don't ever rush to lock one in especially after the reseve bank slaps us with another increase (which will most likely happen this year at least).

You see this all the time with investments in shares - the market turns down and the "herd" mentality of less educated investors start to sell off to avoid loosing money, rather than sticking with their investment and watching it rise again to new hieghts!

Last thing to remember - on averages over the past 50+ years - property doubles in value every 10 years so thin about owing the bank approx $150,000 for this home and it being worth approx $400,000 now there is some equity to invest into your car, another property etc etc