All Topics / Help Needed! / Was Burying a Home Now a Mistake?

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  • Profile photo of abrogardabrogard
    Participant
    @abrogard
    Join Date: 2009
    Post Count: 8

     We just bought our first home.   Tiny little place, very 'cheap' as houses go these days but we borrowed the max to get it. It was worth $130,000 and we borrowed $115,000.  Over 30 years.

     Now it all looked good, interest rates being so low and all. Our repayments are currently less than we'd been paying in rent. So theoretically we're ahead all the time because at least some of our money is going to our own account, instead of it all being lost in rent.

     But we were/are babes in the financial wood. We didn't think or look around or study much.

     We had a bit of a think and figured the future prospects when things come good again were for a rise in interest rates back to about 8%. 

     That's a hit. That's $40 per week more on our mortgage.  But that we can handle. Though we've got a poor income. But that would just put us where we'd be if renting (but without the government rent rebate – i.e. actually $60/week worse off).

     BUT, now we see that in fact in recent economic and housing history there's been interest rates of 17% and there's some who predict it'll go back there.

     I read a thread on these forum written last year that was all about that.

     Well that would kill us.  That'd be $200 extra PER WEEK on our mortgage. There's no way.  We'd lose the house and everything we've put into it.

     So how about moving to fixed interest?  Well a quick look shows that they're waiting for you there, too.  They only offer fixed interest for amounts higher than current interest rates and for increasingly higher rates as the term extends. No news to any of you clued – in guys and makes obvious sense when you stop and think about it and stop being a babe in the woods.

     The only encouragement I can find is that the fixed interest offerings currently seem to be about 9% for a ten year term. Does this mean that the financial gurus in their gold plated palaces are betting (or knowing without doubt) that it'll take ten years for interest rates to reach 9% ?

    If so that'd be good news.

    But recent events seem to indicate that no one in the financial world knows what they're talking about and forecasting financial conditions is like betting on horse races, only not so easy.

    Is that true or is that wrong?

    Does anyone know better?

    Does anyone have good confident opinions about what interest rates are going to do?

    Were we right to purchase our home or should be have avoided such a debt and continued to pay rent and save – thereby limiting the 'dead money' to the rent (subsidised by the government) rather than at the mercy of rampant interest rates?

    Perhaps we shouldn't have gone this way at all? Perhaps for people at our financial/economic level in our society it makes more sense to rent and use govt subsidies and save and collect profits from high interest rates until such time as we can nearly purchase for cash?

    Very relevant I think because I believe we represent the majority of Australians, but maybe we don't maybe we're a tiny minority of not much consequence?

    regards,

    ab  :)

    Profile photo of mjozmjoz
    Member
    @mjoz
    Join Date: 2004
    Post Count: 3

    Hi ab,

    First of all – congratulations on buying your first home. By the sound of it, your purchase was like my first house purchase -more an emotional decision than an investment one!

    Having said that, I assume you borrowed the money through a bank or similar? If so, they would almost certainly have assessed your application quite conservatively (based on the information you provided them), the loan to value ratio (LVR) you describe and your ability to repay. This should give you a degree of comfort that they don’t expect you to fall into desperate straights any time soon (though not a guarantee of course!)

    For every prediction of rates going ballistic, you could probably find another prediction that they won’t get anywhere near double digits. In short, as you say, bit like betting on the horses, so don’t beat yourself up worrying about what may or may not happen.

    Instead, work out what your worst case scenario is (e.g. rates go up to in excess of 10% and the house drops in value to $100,000) and then look at ways to mitigate the risk. This could include paying extra off your loan each month to build up a buffer (every little bit helps, especially on a 30 year term), or adding value to your new home through small renos or landscaping that will add value in fair to good times and maintain value in bad times. This can then give you an extra buffer in your worst case scenario.

    In short – don’t beat yourself up worrying about what might have been. Congratulate yourself for making the decision and following through on it and then plan for the future!

    Good luck

    Cheers,
    Michael

    Profile photo of QGMQGM
    Member
    @qgm
    Join Date: 2009
    Post Count: 25

    Wow congratulations on having the intelligence to buy your first home.

    You say that you could handle an extra $40 per week "if you have to" so why not do it now and have the benefit of building up a good buffer if rates do go up.  This extra payment would have a good effect in reducing your loan much more quickly.

    I would be very wary of fixing rates at this time – one reason is – if you do you will be paying extra NOW because of the higher fixed rate so whyu not just pay the extra into your loan as suggested.

    Also you may not be aware but if you fix your rates and decide to sell your house before the end of the fixed rate term the lender may charge you "break fees"  if they cannot get the same return on the money they lent you.

    I know you are a little concerned and say that maybe you would have been better off using the rental assistance etc, however, property historically does increase in value over time.  You would also have the benefit of any value increases which you wouldn't have if you continued to rent.

    All in all I think you have made a good start and just remember don't waste money on things you "want" as opposed to things you really need.  Example you may "want"  that new car, plasma tv etc but do you really "need" it.  Every unnecessary dollar you waste impacts on your financial future.

    Good Luck and well done.

    Cheers

    Profile photo of bbw123bbw123
    Participant
    @bbw123
    Join Date: 2009
    Post Count: 2

    Hi,
    Please visit following link to get advice and tips for home loan and loan refinancing
    10 great tips for home loan with a renovation or building loan

    Profile photo of v8ghiav8ghia
    Member
    @v8ghia
    Join Date: 2005
    Post Count: 871

    Definately not – congratulations & enjoy your own little piece of our wonderful country.
    For that price, if you are living in a reasonable area that you are happy to be in – you have indeed done the right thing both short and long term. Enjoy the low variable rates for now too.

    All the best!
    Cheers

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Start paying extra now to get ahead a bit if you are worried. It will save you interest and speed up the process.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of abrogardabrogard
    Participant
    @abrogard
    Join Date: 2009
    Post Count: 8

     Well thanks for the input, guys, I'm very happy to read it all.  And my apologies for my typo on the title of this thread – 'burying' a home? Must have a raised a few eyebrows here and there.  I would change it but I don't believe there's any way for me to do so, perhaps the moderator can/will.  Perhaps it was some kind of Freudian slip.  :)

     We are trying to do as has been suggested:  improve the home and pay more into the loan as we go.  I'm in the process of pouring a slab for the little garden shed we bought and erected and then we plan a twin carport and then perhaps a serious shed that can be used as a workshop for all of us,  me, mum and the kids.

    The home was in excellent condition having been repainted by the housing trust – and repaired, I'd say, everywhere inside – before we got it.  And we'll try to keep it that way.

    But the whole thing has been and still is an eye opener and a wake-up call to me.

    I had no idea so many Australians lived in such poor conditions.   You don't get much for $130,000.   It's okay.  We are adequately housed. It is clean, modern, comfortable, it's nice, it's okay, don't get me wrong, I'm not pleading that we're in  inadequate substandard housing, no.

    But it is a tiny semi-detached place. I didn't even realise semi-detached existed in this country. Excuse my incredible blind ignorance.  We are using two of the rooms, until the shed is ready, to store stuff we brough with us that we'd no place to put – and we didn't have a mile of stuff.  Two of the bedrooms are just like sections of wide passage – no wider than the old wooden Queensland house verandah sleepout.   Well, one of them is precisely that, I'd say, the back verandah boarded in and made into a 'bedroom' so it becomes a 'three bedroom' house. An invalid description, properly, I'd say. 

    And what it is made of I don't know.  Cardboard is what I call it.  I suspect it may be Gyprock because of what a tradie said in a shop when I was buying a tv cable socket thing  'This goes through your Gyprock'.    But the interior walls are a couple of sheets of it. Flimsy, thin, sound carries everywhere.  The exterior walls are 'clinker built' is the nautical way of saying it.  Planks overlaying each other.  Planks of a thicker Gyprock I think.

    It's like a tiny jigsaw puzzle cardboard box.

    We knew, of course, what it was before we bought it and bought it because it was in excellent condition and the block was large enough and this and that and the other….

    But I was thinking we were one of the tiny minority at the bottom of the whole heap.

    So surprised to find whole suburbs built this way.  We're not in a tiny minority at all.  We seem to be part of the lower end of mainstream Australia.  At least in this part of the world.

    That's my first kind of 'social awareness' awakening that it has given me.

    But then I thought about the economics as prompted this thread in the beginning.  And I thought about the current 'financial crisis' and I learned about the 1990 17% interest rates and it began to dawn on me that buying a house and settling down in your tame, timid, polite, law abiding, ungreedy, docile, hard working proletarian way to years of drudgery in some whacker job and devoting decades to rearing kids and paying off the mortgage was not the grim, grey half-life made bearable by the knowledge of the value of child rearing and the certainty of success that I'd thought it was. Or is.

    No.  More like you're a cannon fodder soldier in the front line. Liable to lose everything after years of vain attempts to keep up with rising interest rates.   Just like a soldier eventually dying after numerous wounds.

    How many people in this country have suffered this? How many foreclosures were there in 1990?  How many foreclosures are there per year as a national average?  What is the human suffering involved in this?  How can we say we have a government and a caring society when this is the base line situation?

    The vast difference between ourselves and the aboriginal population that never gets bridged and never gets talked about and that gives rise to all the strain and tension between the two groups is that the aboriginal always has a home, a right to live and exist, from birth.  Yes, okay, it is laughable you might say, when you look at the humpy he calls a home.  Or the tree he sleeps under that he calls a home tonight.

    But it is not laughable at all.  It is a mindset we're talking about.  He has a right to sleep under that tree. He has a right to build that humpy. He has a right, if he wished, to build a palace.  He is always on his own land.  He always has land. He is always 'possessed' of his land, his birthright.

    But we? What do we have?  Nothing.  Our birthright is to have nothing.  There is no tree you have a right to sleep under. There is nowhere you have the right to build a humpy.  There is definitely no place you have the right to build a palace.

    We are part owners, joint owners, of this land just as the aboriginal is joint owner of his land.  We think.  But in our case it is not true. We have to buy our own land from ourselves.  At  ridiculous prices.  $100,000 per quarter acre would be cheap  I'd guess.

    And having done that and  borrowed money to do it and having built a house or  bought one then we're at the mercy of the vagaries of the money market, etc.   We can be blown out of the water at any time and made homeless again, dispossessed  people again.

    That's not to mention the ongoing rates and taxes.

    It seems to me to be a no-brainer that we should have available to us from birth the right to a piece of land to call our own and if that can't or won't be done then we should at the very least be able to purchase something at a guaranteed fixed low rate of interest, or set percentage of our different income streams or somesuch.  i.e. we should have some tenure security as owners, possessors, inheritors, guardians and parts of this land.

    Excuse my naivete. I had not thought that any Australian was ever foreclosed on.  If pushed I would have surmised that greedy buggers buying way beyond their means may get foreclosed on and so they should, I would have said, serve them right.  But I hadn't lumped them in with the common ruck.

    Belatedly I realise it is the common ruck that bears the weight of all these tides of foreclosure.  How could I have been so dumb? I know full well the world exists on the shoulders of the poor.  My clothing is made by the peasant poor of China, most of my tools, and so on…  we all know how it is.

    But somehow I hadn't thought this vicious truth pertained here in the lucky country. What a fool I am.

    I'll do some Googling.  I'll do some research.  I'll try and gauge the extent of the pain and harm brought by rising interest rates and foreclosures to the ordinary people.

    It is like the black Saturday tragedies.  They are ongoing.  Immeasurable pain, brought to ordinary people, an never a hint of it effects my life. It is ongoing but I know nothing of it.   So also this economic housing thing.  It must be all around.  How about all these people losing their jobs in this current crisis?  How many of them are finding they can't pay their mortgages?

    What about the house prices? I saw something yesterday quoting $400,000 and $500,000 as ordinary house prices in some cities! Is that true? Is that right?  How can an ordinary family possibly service debts like that once interest rates begin to rise?

    You know where I'm from? I'm from the bush.  I've got a little block – house block – in the bush with a shed on it where I live and work in my batchelor days, happily getting up to greet the sun and the trees and the birdsong and thank god I'm in this great country without a care in the world. 

    But  what did I know?  It is not for most Australian like that at all, is it?  They're waking to a concrete jungle with the ceaseless roar of traffic all around, cheek by jowl with their neighbours,  the constant pressure to meet mortgages and rates and taxes,  the endless road hassle with police lurking like highwaymen around every corner….

    I didn't know, mate.  I didn't know.

    I'll do what I must do and then I'll get myself and my kids out of it as soon as I can.  I think it is deplorable.

    That's a bit of a rave, guys,  even a rage perhaps….   sorry,  it wasn't planned.  It just sort of spilled out.  It is 7.00 a.m. and the first crack of dawn is in the sky.  It's making me nostalgic for my bush home I guess.

    All the best to you all.

    regards,,

     ab   :)

    Profile photo of OzzaOzza
    Member
    @ozza
    Join Date: 2009
    Post Count: 4

    Mate congratulations on your house, it's a big step!

    If you're concerned about high interest rates, it's probably a good time to point out that they haven't been this low in many decades. I think you can be fairly sure that it's not going to be that bad in the next ten years if the banks would offer you 9% fixed. If it helps to know, the reason interest rates go up is because people are spending a lot of money and the rate of inflation increases. As a result, interest rates rise to curb consumer spending and encourage people to save because they earn more interest on their money etc (I've skipped a few steps in there for simplicity's sake). At the moment, we're in a recession so interest rates are ridiculously low. Whether or not they go back to 17% remains to be seen, but while Im no financial expert I think other people will agree with me when they say it's not likely to go back up that much in the near future (the next couple of years). Of course it may never go that high again at all, you never know. If you're really concerned, you can use an offset account (depending on your loan) to reduce the interest you pay on your loan or simply by paying off more of your loan (depending on what type of loan it is). I also agree with not needing to have a fixed rate at 9% for the next ten years, while it does mean more risk, I generally wouldn't want to be paying the extra interest NOW just because I'm concerned about the interest going above 10%.

    Also you're not wrong, in Sydney if my memory serves me correctly, the median price for a unit is around $400-450k. It is a pretty daunting thought and obviously it means that getting your own place can be and is difficult to secure. Of course salaries in the city are generally higher to accomodate this, but housing affordability is pretty poor in a lot of major cities. The government tries to help with the First Home Owner's Scheme but even still, it's become quite a problem.

    Point of all this is that if you're really that afraid of interest rate rises and losing everything; you might find it worthwhile seeing an accountant or financial planner and setting up your affairs in such a way as to offer limited liability so you don't lose everything if the fit hits the shan… so to speak.

    All in all, congratulations! A first home can be nerve-wrecking but you've made a good decision.

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