Post to Facebook on 4/7/2018 at 9:56 AM
Commenting on “Home prices fall for ninth month as tighter lending bites”
https://www.theage.com.au/business/the-economy/home-prices-fall-for-ninth-month-as-tighter-lending-bites-20180702-p4zozl.htmlNote that I use the word home instead of property in this post.
Month after month for the last nine months the press and real estate experts confirm that home prices across Australia's major cities have been falling. This is definitely good news for home buyers and investors who have the ready cash to buy in the coming months.
On the contrary, it is bad news for the home owners who have bought their next home and need to sell their current one. Their homes will be in the market at reduced price.
A word of warning for the potential buyers who are in the hand-to-mouth financial position. You may have enough for the deposit/down payment, and in addition, you may have just enough to scrape through monthly repayment.
If you are to buy a house for $600,000, you need to have 20% and borrow 80% of the valuation. For simplicity, we just assume 80% of the house price, or $480,000. Banks are unlikely to let you repay interest only but principal and interest on monthly basis.
If the loan is for 30 years, and you are lucky to get it for 4%, your monthly repayment is $2,292. If the loan interest is to rise to 4.5%, the monthly repayment will go up to $2,344, that is an increase of $52 per month or $13 per week. If the interest rate jumps to 5%, then monthly repayment becomes $2,577, or $285 per month or $71.25.
The latter increase is not just doubling the former; $71.25 per week is substantial additional expense.
It is important to note that when interest rate increases, the rest of your bills are more than likely to increase In payment. Some may argue that there could be a wage increase by then, but I can assure you that the wage increase may not be enough to cover all the increase in additional expenses.
In order to overcome the shortfall, you need to increase your income like moonlighting, taking on another job by other members in the family, and preferably cut expenses at the same time.
RBA’s monthly meeting deciding the cash rate is no longer a reflection of the real interest rate charged by the bank.
When I talk about buying a house or any form of property within your budget, you must also factor in your ability to repay should the increase rate is by 1 to 1.5 per cent for the next 2 years.
Thank you for reading.
https://www.theage.com.au/business/the-economy/home-prices-fall-for-ninth-month-as-tighter-lending-bites-20180702-p4zozl.html
Commenting on “Home prices fall for ninth month as tighter lending bites”
https://www.theage.com.au/business/the-economy/home-prices-fall-for-ninth-month-as-tighter-lending-bites-20180702-p4zozl.htmlNote that I use the word home instead of property in this post.
Month after month for the last nine months the press and real estate experts confirm that home prices across Australia's major cities have been falling. This is definitely good news for home buyers and investors who have the ready cash to buy in the coming months.
On the contrary, it is bad news for the home owners who have bought their next home and need to sell their current one. Their homes will be in the market at reduced price.
A word of warning for the potential buyers who are in the hand-to-mouth financial position. You may have enough for the deposit/down payment, and in addition, you may have just enough to scrape through monthly repayment.
If you are to buy a house for $600,000, you need to have 20% and borrow 80% of the valuation. For simplicity, we just assume 80% of the house price, or $480,000. Banks are unlikely to let you repay interest only but principal and interest on monthly basis.
If the loan is for 30 years, and you are lucky to get it for 4%, your monthly repayment is $2,292. If the loan interest is to rise to 4.5%, the monthly repayment will go up to $2,344, that is an increase of $52 per month or $13 per week. If the interest rate jumps to 5%, then monthly repayment becomes $2,577, or $285 per month or $71.25.
The latter increase is not just doubling the former; $71.25 per week is substantial additional expense.
It is important to note that when interest rate increases, the rest of your bills are more than likely to increase In payment. Some may argue that there could be a wage increase by then, but I can assure you that the wage increase may not be enough to cover all the increase in additional expenses.
In order to overcome the shortfall, you need to increase your income like moonlighting, taking on another job by other members in the family, and preferably cut expenses at the same time.
RBA’s monthly meeting deciding the cash rate is no longer a reflection of the real interest rate charged by the bank.
When I talk about buying a house or any form of property within your budget, you must also factor in your ability to repay should the increase rate is by 1 to 1.5 per cent for the next 2 years.
Thank you for reading.
https://www.theage.com.au/business/the-economy/home-prices-fall-for-ninth-month-as-tighter-lending-bites-20180702-p4zozl.html
