Before committing to a mortgage, it's worth considering the pros and cons of renting versus buying. Let's have a look at them now.
The idea that renting is throwing money away can be a misconception. You're getting a place to live and you're not paying interest on a home loan.
When you pay a mortgage, you hope to eventually own your house outright, but there’s always a danger it won’t be worth what you’ve spent on it when it's time to sell. There are all sorts of hidden costs on top of your home loan interest like repairs, maintenance, council rates and insurance.
Of course, there are, plenty of reasons why owning your own home is such an attractive prospect. Bricks and mortar are usually a solid investment. In most cases, your home will appreciate more than you’ve paid in mortgage, interest, taxes, and maintenance, so you’ll be free from payments in your retirement and may start making a profit.
If you choose wisely in terms of property and location, that could happen sooner rather than later. Plus, you can offset some costs with tax benefits or first-home buyer incentives.
Renting isn't always going to be affordable
One of the most important issues is that on the income support system, you can’t afford to be a renter when you retire.
If you’re on a single pension of $23,000 and rent for a one-bedroom home is $18,000, you’re left with $5000-$8000 to live on.
Even for a couple getting $35,000, rent for a two-bedroom place would be $25,000, leaving you $10-15,000 to live on. That’s well below the poverty line. You could be in real trouble if you haven't decided to buy.
If you can afford a mortgage, it’s typically a better place to put your money than in savings.
For example, a home in an outer suburb of Melbourne or Sydney might cost $500,000. If you rent, you might pay $450 a week. If you buy, your mortgage could be $580.
Do your research
What you don’t want to do is rush into buying a home before you can afford it. If your mortgage repayments are too high, there’s a serious risk you could be left “house poor”.
In the short-term, you should consider your lifestyle. Most young people want to live in the inner city, where they work and socialise, and where most of the entertainment is found.
That’s fine for 10 or 15 years, say, from the age of 20 to 35, but can then become problematic, if you can do it, buying is better option.
To find out how much you can borrow, call me on 0487 344 352 for a free no obligation consultation.