How to Buy a House for Nothing!!!

We've talked about the benefits of buying a house over renting and now we'll take a look at an example of how that all works out on the financial side of things.

I've done the numbers by way of an example, based on a purchase of land and build in Hammond Park, for a $600K project and then worked the loan repayments and structures, based on the current interest rates being offered by a traditional lender (ANZ Bank).

First things first - the deposit. Some lenders will let you get started with a relatively small deposit of say 5% to 6% of the total cost. For the sake of making numbers easier to work with and understand, let's go with a 10% deposit of $60K. Obviously if you've got some money in the bank and / or equity, this is not a huge stretch. That means you're borrowing $540K, or 90% of the property value.

If you paid that off over 30 years, at the current rate of 4.6% p.a. (4.99% p.a. comparison rate) you would end up paying back $997K (almost $1M) over that period of time, at something like $2,770 a month.

A switched on mortgage broker could / should / would structure your loan using a combination of standard variable loans and fixed interest loans and from there they should be able to reduce your home loan to a term of something more like 15 years and save you almost $240K - which in essence means you could be in your own home, pay it off in half time and essentially what you would save is equivalent to the cost of building the house!

On top of that, if you looked at renting versus buying, your initial deposit of $60K given a property value increase of just 4% p.a., and normal loan repayments, turns into something like $238K in equity after just 5 years. Your repayments over that period of time would be roughly $166K based on current interest rates, etc., but you improve your equity by $178K!

That means you're getting something for your money, plus a roof over your heads. If you rent, you're going to shell out around $150K over the same period and, end up with nothing to show for it!

Given that property has been increasing at 7.2% p.a. for the last 25 years, this is a fairly decent bunch of numbers to work with and base decisions around.

Time to make the move to owning your own property people - the longer you leave it, the further away it gets!!!