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If you don't own a home by your 40s, you never will. And you'll end up poorer than those who do.; Silly bears who think they can rent their way to wealth are only fooling themselves...
Topic Started: 10 Oct 2016, 07:29 AM (8,611 Views)
Jon Snow
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Khaderbhai
11 Oct 2016, 07:00 AM
Starting position is that the potential buyer and renter are the same person - i.e. that person can either choose to buy or rent, using whatever capital and income they have at their disposal.
I propose the following as starting assumptions.

The person in question wants to live in a house where the paint, fixtures and fittings are no older than 10 years.

Starting cash position: $100,000
Household Annual Nett Income: $86,500
Annual Non-Discretionary Living Costs (excluding accommodation costs): $35,000

Starting mortgage rate: 3.9%
Mortgage rate floor: 2%
Time to floor: 36 months.
Mortgage Term: 30 years
Upkeep cost*: 0.3%
*(rates and water, assume it is a detached dwelling with no strata fees)
10 year depreciation - 10% of dwelling price ($50,000 to renovate, also deflates @ 2%)

Starting term deposit rate: 2.5%
Deposit rate floor: 0.5%
Time to floor: 36 months.

Do you agree with these starting assumptions?
Edited by Jon Snow, 11 Oct 2016, 08:20 PM.
Speak when you are angry and you will make the best speech you will ever regret.
Ambrose Bierce
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Khaderbhai
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Jon Snow
11 Oct 2016, 08:19 PM
Do you agree with these starting assumptions?
You can use whatever assumptions you want, however I'd suggest 30 years is far too long for a mortgage for most people.

It doesn't make sense to spend that long paying a mortgage, when it can probably be paid off much sooner.

If you're suggesting a 500K home with 100K deposit, then the remaining 400K loan would be paid off in 15 years at 3.9% with a weekly P&I repayment of $678

Or over 10 years with a weekly repayment of $929.

https://www.nab.com.au/personal/loans/home-loans/home-loan-calculators/loan-repayments-calculator
Edited by Khaderbhai, 11 Oct 2016, 09:23 PM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Trollie
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Khaderbhai
11 Oct 2016, 09:06 PM
You can use whatever assumptions you want, however I'd suggest 30 years is far too long for a mortgage for most people.

It doesn't make sense to spend that long paying a mortgage, when it can probably be paid off much sooner.

If you're suggesting a 500K home with 100K deposit, then the remaining 400K loan would be paid off in 15 years at 3.9% with a weekly P&I repayment of $678

Or over 10 years with a weekly repayment of $929.

https://www.nab.com.au/personal/loans/home-loans/home-loan-calculators/loan-repayments-calculator
Jon/John demands to live in a multi million dollar home. Even if financially it's suicide to rent it.
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Simon_S
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Khaderbhai
11 Oct 2016, 09:06 PM
You can use whatever assumptions you want, however I'd suggest 30 years is far too long for a mortgage for most people.

It doesn't make sense to spend that long paying a mortgage, when it can probably be paid off much sooner.

Does that include those who draw against their equity to fund consumption.......
Whats the Yield on property again?

Edited by Simon_S, 11 Oct 2016, 10:44 PM.
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Khaderbhai
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Simon_S
11 Oct 2016, 10:43 PM
Whats the Yield on property again?
Depends on the individual property and location, but nationally it's about 4% gross.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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Jon Snow
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Khaderbhai
11 Oct 2016, 09:06 PM
You can use whatever assumptions you want, however I'd suggest 30 years is far too long for a mortgage for most people.

It doesn't make sense to spend that long paying a mortgage, when it can probably be paid off much sooner.

If you're suggesting a 500K home with 100K deposit, then the remaining 400K loan would be paid off in 15 years at 3.9% with a weekly P&I repayment of $678

Or over 10 years with a weekly repayment of $929.

https://www.nab.com.au/personal/loans/home-loans/home-loan-calculators/loan-repayments-calculator
Well, let's take the lesser of your fantasies: Mortgage paid off in 15 years.

At 2% deflation per year:
* In year 12 your 'equity' in your home would exceed it's market value.
* In year 15, the renter could buy your house for cash, if they so chose, although the total outlay would still be higher than the buyer.

At 5% deflation per year:
* In year 10 your 'equity' in your home would exceed it's market value.
* In year 10 the renter could buy your house for cash @ $315K, having already shelled out $160K in rent, versus a total outlay of 572K for the buyer

Doesn't look any better @ 3% deflation for the buyer either.

So, nicely done in goal seeking 2% as the sweet spot to save your argument and thanks for making me do the same :D

Looks like CPI is running at 1%, despite mandates to the contrary. I wonder what will happen next ....
Speak when you are angry and you will make the best speech you will ever regret.
Ambrose Bierce
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Simon_S
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Khaderbhai
11 Oct 2016, 10:50 PM
Depends on the individual property and location, but nationally it's about 4% gross.
Whats that really after expenses.......
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Sydneyite
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Simon_S
11 Oct 2016, 11:14 PM
Whats that really after expenses.......
Depends, but probably about 3.5% for most properties, after rates, water, insurance, and some maintenance / upkeep?
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Ex BP Golly
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Khaderbhai
11 Oct 2016, 09:06 PM
You can use whatever assumptions you want, however I'd suggest 30 years is far too long for a mortgage for most people.

It doesn't make sense to spend that long paying a mortgage, when it can probably be paid off much sooner.

If you're suggesting a 500K home with 100K deposit, then the remaining 400K loan would be paid off in 15 years at 3.9% with a weekly P&I repayment of $678

Or over 10 years with a weekly repayment of $929.

https://www.nab.com.au/personal/loans/home-loans/home-loan-calculators/loan-repayments-calculator
That's All irrelevant.

Most people take 30 years

https://www.mutilatethemortgage.com/2014/07/28/how-long-does-it-take-to-pay-off-a-mortgage/
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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Khaderbhai
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Ex BP Golly
11 Oct 2016, 11:43 PM
Your own link says most people should be able to pay off a mortgage in 12 years.

The reason most hold a mortgage for longer is because they choose to upgrade to better dwellings as they pay off their loan and build equity through capital gains.

It's much easier for homeowners to upgrade like this, because they can take their capital gain with them, using it to upgrade to a better dwelling while keeping mortgage repayments just as low as they were before.

It's one of the reasons why elderly people, if they still rent, tend to be renting small sub-standard units or townhouses, perhaps in retirement villages or other low-cost locations.

Whereas elderly homeowners tend to own impressive freestanding homes. A valuable asset to pass down to the kids.

So if we assume the homeowner upgrades to a better dwelling, say every 10-15 years, then this only makes the case for home ownership even stronger, and accelerates the homeowner's wealth accumulation due to capital gain on increasingly valuable dwellings.
Edited by Khaderbhai, 12 Oct 2016, 07:25 AM.
Banks can't repossess your home simply because the market value falls. Australia's Consumer Credit Code says consumers aren't liable for things ordinarily outside their control and can't be held to obligations that could only be met by selling their home. Click for details.

"The truth is that there are no good men, or bad men. It is the deeds that have goodness or badness in them. There are good deeds, and bad deeds. Men are just men."
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