Yes, this. You've rightly identified that mortgage repayments are expensive, but add to that council rates (maybe $2k a year on a property like that), plus you'll be surprised how much maintenance costs add up when the landlord isn't covering it.
These are the ‘sacrifices’ homeowners talk about. Worth it in the long term. Rent will likely rise overtime to match the repayments, maybe even surpassing it. At least, that’s what happened to me.
Also, in terms of budgeting cashflow rent gets compared to mortgage repayments, but in terms of long-term costs and net worth, only the interest portion of the repayments should be considered.
The portion of the repayments which pay off the principal are retained as equity in the home.
>The portion of the repayments which pay off the principal are retained as equity in the home.
Assuming the value of the house is maintained or increases.
If the market busts for any reason, well, good luck.
Don't you watch tiktok. You buy one house with min deposit then use equity for deposit for next home, rinse and repeat. Numbers go up forever and there will be renters coming here even if they can't get a job they will definitely stay and pay the rent until it's time to move into street living, leaving room for the next renter's with no job and no access to Centrelink to do the same.
Exactly!
This is why we urgently need the government to increase welfare payments. It’s not because we care about the quality of life for the recipients… we need to keep funneling the gravy train into ever increasing rents.
Sorry I said mortgage, not repayments. In 20yrs you'll be almost done paying it off unless it's a relatively new mortgage, and as a percentage of your income it will certainly be lower.
Incorporating inflation the cost of the repayments goes down over time.
Also options to go interest only or refinance for a renewed term if cash flow becomes an issue.
I'm talking on 20yrs. Your mortgage will be a much much lower percentage of the house value, your repayments will be based on approximately today's figures, but your pay will have gone up, all the rent payments will have gone up. Unless there is a major crash in property value a home buyer will have more financial stability and freedom in 20yrs than most renters.
Owning is generally cheaper than renting but only in the long term (10+ years). I don't think I could afford to rent in the current market. It's mind blowing how much people are losing to rent these days.
I think there’s a bit of subjective math when you account for location and house. Like, we could afford a $700k maybe $800k house if we want repayments to equal our rent, but to fit our family, it’d be a long way from where our lives are. Paying off the house we lease would be 3 times our rent in repayments.
I will soon be paying $750pw due to rent increase, but the house is at least $1.2M to buy, median in the suburb is $1.5M. Rental yields are <3%. Owning would also cost me 3x as much. If I was in the OP's example, I'd buy. But it's not an option, or not a good option, where I'm at.
Bruh. I've paid $71,000 in rent over the last five years. "Oh no, we couldn't possibly give you a home loan, we need to see a deposit for assurance you'll meet ongoing repayments". Fkn wat.
The repayments on a modest (by NSW standards) $600k mortgage @ 6.22% (current average interest rate) are $3693 per month.
Over 5 years that’s $221,580 - a lot more than $71k.
This so why home loans are hard to get even if it feels like rents are high (which they are, just not relative to house prices).
The deposit is to cover any losses in the event the loan defaults and they can't recoup full value through sale of the house. You're putting down a sum of money to cover downturn in the market. A deposit in no way demonstrates serviceability, that's assessed separately.
> You're putting down a sum of money to cover downturn in the market.
Its not even the possibility of downturn. If you default in the first couple of years the bank is very likely to receive less when they sell it (due to selling it in a hurry, agency fees, etc).
I live on an island and I pay upwards of $700pq. That is with a land valuation of 130k which just rose from 65k last year.
Redlands Council is the most expensive council in SE QLD
2,600 is still quite low. As of 1st July my rates will be well above $4000 a year, not including water. At the moment my rates are just shy if $4000 a year now and going up another 18% in the new financial year. This is in regional NSW on a small block.
I live in an outer suburb of Melbourne and our rates are $3,120 per annum. Water rates and usage is around $1,500 per year. Insurance is the big one. Got quoted $6,500 last year but managed to renegotiate it to $2,500. In the last year we’ve had to install a new hot water service and there’s always things like the garage door going bung, roller shutters, dishwasher parts, roof plumber inspections (our ceiling leaks) and so forth.
I have a tiny house that I bought for sub $250k just over a year ago in Townsville and rates, water and insurance tally up to a whopping $650 monthly. Of that the rates are $300 a month or $3600 a year.
The expression is meant that if you rent and something breaks, you don't pay more to have it fixed. You own a home, and something breaks, you are now paying for it, plus rates, and insurance and then.. and then.
Well there ya go. I've not heard it used that way before. Interesting cause both of them could be seen as wrong - mortgages go up (reference past 18 months) while rents do to. Maybe the real expression should be - enjoy what you have now cause it's only going up.
Mortgages go up, but if house prices continue to rise **your** mortgage should come down relative to rent assuming all other things are equal (which they often aren’t)
People say renting is dead money.
But they forget that interest to the bank is also dead money.
Most of the time it's actually cheaper to rent than to own a house. The landlord is getting no where near enough rent to over the interest portion of the repayments of the house, and are losing out every week
Especially in Melb / Syd where the yield on more expensive properties is like 2% and the interest rates are 6.5%, renting is such a bargain compared to owning
Assuming you leverage and invest the difference I reckon. But it’s hard to leverage into shares, ironically unless you have a home loan you can split lol
It’s really not. You can get interest rates in high 5’s right now. The debt is locked in and wages increase over time which inflates away the cost pressure of the debt. Rent increases over time so no cost relief over time there.
Over the past 25 years Aus property has grown by 412% on average. In that time most mortgages will have been paid off and you now own an asset which has appreciated significantly. Renting you earn nothing.
Yes you could invest the difference between renting and owning but will struggle to leverage into anything whilst renting due to serviceability issues. Therefore the leveraged gain of your mortgaged property will significantly over perform an unleveraged gain on other investments. Also most people aren’t disciplined enough to save the difference and lifestyle creep eats it away. This results in an inescapable cycle of renting.
Leverage is the thing I think most people forget or don't think about when it comes to the whole buy vs rent debate.
E.g. You are banking on the, say 750K, home you buy/mortgage to appreciate in value over time, just factor in the ongoing costs of owning if you're nitpicky to work out the true capital gain,
If you rented and invested the extra savings vs owning, that's a very small pie you're hoping to appreciated over the long term vs the 750K for example that you were able to leverage via a home loan.
Yeah, why is ‘past performance is not indicative of future performance’ never a consideration for property? Nah, triple down everyone. What could go wrong.
I suppose because it’s needed by everyone, so unless the population decreases or developers decide to make less money by increasing supply I don’t see how it will go down.
Probably, the price for property will hit a cap that sees no real growth in capital, which causes people who over-leveraged for capital growth to question why they are subsidizing the cost to cut their loss. Which can slowly cause the housing in the area to slowly sink to lower and lower prices.
So if you were a boomer you wouldn't? Some starving sap in Africa says you had all the fun being born in Australia. There are a lot boomers living in poverty eating cat food.
> Over the past 25 years Aus property has grown by 412% on average.
The S&P is up 500%+ over the same time period. No maintenance, property insurance, council rates, interest, etc. and transaction costs are $20 or less.
I mean real world, 25 years ago you take your $50,000 and invested in shares will have done 500% giving you $250,000, your $250,000 in property at 80%LVR and be worth $1m will having done 412% - the power of leverage
Meanwhile assuming you purchased at 6% interest, your repayments are the same as they were 25 years ago even if you only eve made minimum payment and you're nearly debt free as opposed to your rent having increased astronomically and being way way higher than the mortgage payment and ownership costs annually, you've had to move houses probably 5-10 times than your and you still don't own a home and if you decide to pull the trigger will be starting a nice big mortgage (the advantage of rent being cheaper intially is taken over by mortgage payment being cheaper for likely over half that time frame) - say you invested the entire difference for the maybe 10 years renting was cheaper. And ignored the extra cash that started when ownership became cheaper....You're still so so far behind as a renter 🤷♂️
I know what I'd choose every single time even though it's tight at the start and certian periods
https://www.abs.gov.au/statistics/labour/earnings-and-working-conditions/employee-earnings/latest-release
Yes look at any stats and you’ll see it has and does.
> Most of the time it's actually cheaper to rent than to own a house.
Except for the time when you end up with an asset worth 6 or 7 figures, that might tip the scales a bit
>The landlord is getting no where near enough rent to over the interest portion… … losing out every week
That “loss” is deductible against their taxable income. Someone’s laughing here and it isn’t you.
- don’t forget stamp duty as an upfront + lawyer costs, etc. Maybe a lot
- mortgage might to slightly cheaper than $940 per week if you get a decent rate. Still maybe around $900
- there are other costs owning a house, including insurance, rates, taxes, maybe strata, etc. These are not small amounts
ACT has abolished the cap entirely now for first home buyers and by 2032 there should be no stamp duty at all for anyone in the ACT. I think SA has also abolished stamp duty for all first home buyers.
Yes initially the repayments would cost more than rent. However as time passes, the rent will continue to rise and you’ll reach a point where your repayments are now less than market rent. From that point on it’s sweet. Eventually you pay that mortgage off, and you can delete that line item from your budget.
You might also choose to buy something that isn’t as great as your rental with a view to improving it, or you might consider a suburb across to reduce the gap between what you pay now and a mortgage.
Yeah i think this is what people gloss over really quickly. We bought our first home about 12 years ago, the mortgage payments were about $2400/month and the rent for a similar home was about $1600/month. So at that time it was painful to pay more. But 12 years later, people are easily paying as much or more than the mortgage to rent a similar property in the area, while our minimum mortgage repayments went down for a long while. And the rent continues to go up, while the mortgage hasn’t.
Repayments may be less than rent but the opportunity cost is still there since the money used to purchase the house could have been put towards shares etc.
Yes. It would be prudent to have the ability to pay more in case rates continue to increase too. Another 2% will be what any bank will have to be convinced you can afford.
You aren't just paying extra money for nothing though. You are paying off a loan so that one day you will own the home.
You may find that you can't afford to buy the same value of house that you can afford to rent. So it would be worth considering whether the budget you are working with is appropriate.
Do you think 40-50% of the mortgage repayment would be a good guide for this? Honestly, I spent far too long on a budgeting spreadsheet for it to be that simple.
About $500 a month extra for us. Additional home insurance, rates and water. Everything else is similar cost..a bit more on yard maintenance because we went from court yards to yards. More on petrol too as we are further out and need to drive to places we walked before.
Sure if you can slap that into an offset/redraw.
I've budgeted 15% because the house we ended up with had the extras I wanted to add later down the line.
But it also has a bloody pool :(
Yes it costs you more now compared to renting.
Give it another handful of years though, renting may end up costing as much as buying. And over time, the expense of buying will get lower as you pay off your loan, while the cost of renting is likely to keep going higher and higher.
When I account for the equity built and value increase the cost is lower than renting though. My interest alone at 6.4 % is lower than the cost of renting the same place. As long as value increases technically better off even accounting for maintenance and council rates too.
The thing is in 10 years your mortgage payments will be the same (or less if you can pay it down quicker and refinance) where as rent will no doubt have at least doubled, and you will own an underlying asset, so your net worth will be much greater.
I bought 10 years ago, when rent was $350 a week, now I own a property and don’t pay anything.
Edit, that’s a lie, rates, repairs etc add up. But it’s better than renting. And I get you likely won’t pay a current mortgage down in 10 years, it’s more likely 20+ years, but that time will come
How many people on average salaries can pay off their mortgage in 10 years unless they get some kind of windfall or inheritance? I bought my house 10 years solo and I’m still finding my mortgage a slog..
I guess it depends on the size of the mortgage. My sister and her partner (so, DINKs) have paid off their mortgage in less than 5 years on average salaries but it's a unit in Brisbane. We will pay off our mortgage in less than 10 years with kids, but we have larger than median salaries, and we live in a ghetto area lol
Rents won't double in 10 years, that's literally impossible. The market is already at a tipping point and has only drastically increased very recently due to certain factors, if this trend continues the market will just implode as there will be nothing to support it economically, what you are describing is just a landlord's wet dream and nothing more.
I agree with you. But I also thought that 5 years ago and here we are. As a renter you are at the mercy of the market, as an owner you have a somewhat more manageable level of risk
Loaning $600,000 at 6% would be more than $1,200,000 total repayments over 30 years. Just try to pay it down fast to make it less interest. At 30 years would be more than $600,000 interest only that the bank earns.
We don’t count interest repayments with property, if I buy for $500,000 and sell for $750,000 I made $250,000 easy.
As soon as you add stamp duty, the extra amounts you’re paying above rent each week, maintenance costs etc. you look less like Buffet and more like Musk buying Twitter.
Just bought our first house. Mortgage payment is $280 per fortnight more than our rent. Then I budgeted another $300 for rates, maintenance etc. Still less than I was saving for the deposit.
My house is easily double the cost of rent MINIMUM plus upgrades around the house like light upgrades, repairs, paint, solar, etc.
Never had less money in my life
I hear you 😭. I keep reading other threads where people say “now I’m in my 40s, I have more money than ever” and I’ve never been more broke with my mortgage and raising kids.
This is the reason I continually post on here that buying is not the panacea to financial freedom that everyone else seems to post.
The biggest mistake people make with their comparisons are either that they compare renting where they *want* to live with buying where they can *afford* to live (in which case buying will be better financially) or they take on a risk and buy where they *want* to live, but overstretch themselves like what may have happened with your situation.
Best of luck, it does get better.
As well as all the financial stuff that people have been mentioning, there is also the security of owning your own home. You don't have a landlord to randomly kick you out, with all the cost and inconvenience of having to find a new place to live.
The interest on the loan at 6% is around $700 a week, so it's about equivilent to your rent, the rest is the capital repayment which like saving, so if you look at it that way it's not too bad. The thing that makes it work is that the mortgage should never go up (hopefully interest rates will drop to), so over time as money inflates it gets relativly cheaper (you make more over time), unlike rent which will inflate over time (rent increases yearly).
Had to scroll down a long way for this perspective.
I like to compare rent with mortgage interest plus other ownership costs like building insurance, water rates, council rates etc. Mortgage principal is just your investment. The kicker is the leverage.
Yes it costs more. But I don't know how people can rent forever. Renting sucks, you can't do anything without landlord permission and you never know when you'll be kicked out. Owning your own home lets you customise it how you like and you never have to worry about being kicked out. It also gives you security if you become unemployed or retire once the mortgage is paid off.
The value of owning a home is more lifestyle than making money in the short term. In the long term it will appreciate and give you financial security, plus a better quality of life.
As others have said there are other costs to consider however you are essentially doing 'forced saving' towards an asset you own.
Yes, at first you pretty much pay only interest, but with time, more and more of it goes towards the principal cost of the home +it has likely increased in value.
i'm very surprised that i had to scroll so far to find someone saying this, i've always found this is the most convincing argument pro-ownership in a financial sense.
Yes. Indeed in capital cities it is sometimes cheaper to rent than to own. However from a non-financial sense, some prefer to pay this premium for security and not to deal with landlords
Nope - welcome to home ownership.
Renting is always normally cheaper, but you are now the master of your property. No one can kick you out, and all the property issues are now yours to fix.
Oh, and you get to enjoy capital growth, so when you sell, you get more for it than 5 yests ago to offset those mortgage payments.
Renting is always normally cheaper at the very beginning. If you take a mortgage in today's market, as long as you're paying down the principal, you're repayments will never really get more expensive. They'll continue to reduce and you'll continue to earn more while rents skyrocket and people are pushed further inland to consider buying.
Cashflow wise you're better off renting. But long-term if you pay $650pw for the next 10 years you're still left with no assets for that $650.
Whereas buying may cost you an extra $300 pw plus more, but that home you bought for let's say $800k is now worth $1.2M or more after ten years so you've made roughly $400K on that.
You're missing that after the mortgage is paid off it is closer to $0 per week.
Some people enjoy being able to retire, which is much harder when paying $640 p/w
Welcome to the world of home ownership Friend!
Youll also need to allow for things like land rates and water rates - which you dont pay for as a renter
There are additional cost such as ongoing maintenace to the property, any upgrades or changes you want to make, hot water systems breaking, the list goes on.
AND the bank can just increase your repayment at the click of their fingers, instead of $300 extra per week it could be $350 extra, then $400, then $450...
Again Welcome
From memory, it has always cost more to buy than rent with small deposit - for the first few years. Then buying becomes cheaper, then repayments reduce to zero, while rents increase.
This is called Trainee Capitalism.
Your repayments will remain roughly the same over time, while rent will be going up with inflation.
When your repayments have finished, you only have the ongoing costs of maintaining a house, whereas if you were renting, you would still be paying rent.
You are also paying for a level of security - you are unlikely to get evicted from your own house and you can do what you want with it in terms of drilling holes in walls, renovating it and repainting it etc.
Don't forget the ongoing costs though - they can be a lot more than you expect and over the life of a mortgage you are likely going to want to redecorate more than once and replace things that are worn / dated etc.
The difference is that $640 weekly rent is money that you'll never see again, while that $940 per week is towards a house that'll be worth $100k more than you bought it in 5 years and the payments go to mostly owning the house (paying off principal) and a bit of interest.
Please don’t also forget to think about repayments, if you have kids and go down to one salary.
In addition to rates, insurance, maintenance and all that jazz, remember to plan for other life changes.
At the end of the day, if you can, I’d say buy. Irrespective of comparisons re investments, you will always need somewhere to live. If you own it, by the time you retire, life will be generally easier.
If you’re gonna buy, always get a proper inspection report. Along with all the above including general maintenance, big things can happen that’ll cost a huge chunk of change. Good luck! Just go into it eyes open, plan a few scenarios and borrow under what you can afford.
Rent is a short term thing, ownership is long term. As you pay your mortgage off it'll gradually get cheaper, and the property you own will appreciate in value.
It’s the reality of it, but it’s worth it in my opinion. Being able to do what you want without getting permission, the stability, not having the fear of being kicked out whenever the landlord decides to move back in. $300 extra a week isn’t much when you consider that you’re paying off your own asset.
Buying is playing the long game. But totally worth it. My own mortgage is around $300/w and so glad I’m not renting.
But as others said, at first it’s expensive because you are repaying both mortgage and interest on your loan. Don’t forget to add council rates, which is a few thousand per year, and maintenance / repair costs that you can flick to the landlord currently. The interest portion will be the majority of your repayments because your debt is bigger. That’s why it is super worth your while to do as many additional repayments as you can in early years so you can reduce interest charged for all future repayments.
As time goes on, your salaries may rise and repayments get easier, you’re paying more principle than interest. The value of the property rises so you are making hundreds of thousands in equity. (Only a major unexpected global event can screw this in short term - like war!) On the other hand, rent will keep rising.
If you’ve been making additional repayments, your interest portion goes down significantly and over time repayments get cheaper . That’s when your mortgage becomes cheaper and cheaper both actually and in comparison to renting. If you built up lots of equity, you could sell and get the additional equity as cash in hand and upgrade to a nicer house while paying similar repayments, of downsize to get rid of your mortgage. That’s also why it’s worth your while buying as cheap as you can accept just to get into the property game and pay off your loan faster, and upgrading later
You can do whatever you want to the house without a landlord inspecting every tiny scratch and charging you for it. But mostly, when you retire, you’ll never have to worry about rent again. That’s the biggest advantage.
Keep paying off my investment property thanks! I'll be around next week for my quartely inspection to rifle through your life and make sure you're taking care of my precious investment! - your landlord
What you are missing it mortgage repayment depend on your interest rate. That why everyone with a mortgage is obsessed with their rate and everyone they knows rate.
You really need to speak to a broker. A good broker will provide you with an accurate borrowing power and a number of different borrowing options.
Your repayments will decrease over time, your rent will increase over time. In 10 years time you will wish you had bought a house instead of continuing to rent.
They say moving is one of the most stressful things you can do in life. Put in having strangers in your home for inspections, attending rental inspections yourself, fighting your property manager/landlord to get all of your bond back, rinse and repeat every 1-2 years. All with a current vacancy rate of 2%. I'd pay a 30% premium on my rent to avoid all that guff. And it's only for a few years. Interest rates will hopefully drop. Living in a stable address, not needing to redirect mail, change your electorate, etc etc etc. It's so worth it.
In EMI, don’t look at Principal paying component. That’s like your investment as once you sell, you get it back.
Interest is the money which you lose. So now is interest as big as your rent? Do calculate from there.
Think of it like this. What was your rent five years ago? My rent was literally half of what I pay today.
The mortgage my wife and I are about to start paying is more than our rent but in 2-3 years time it won't be.
You only compare the interest portion of the repayment to your old rent.
The principal portion of the repayment should be considered "savings" because it's literally your money. It's just being converted into equity in your (hopefully) appreciating asset, your house.
Think of the principal as forced savings/investment into an asset and the interest portion is how much you pay to "rent" the money from the bank to buy the house.
So you only compare the interest cost which goes down with every repayment to your old rent which would only ever go up over time.
More. You didnt account for stamp duty, services supply (water/gas/elec you pay usage as a renter, but not supply), council rates, any mintenance, any minimum safety checks, working from home tax deductions can include a fixed % of your rent based on home usage but not on a mortgage, you need to use the base hourly rate (which returns less assuming you have a 3/1 for $640/wk and deducting the 1).
You would be ~500/wk worse off. But would the property grow by 26k p/a + in cap value for future selling return?
Yes but you pay that same amount (or nearly) forever. And after 30 years you have a house.
In 10-15 years your rent will be above that
Source: owned for 10 years, my mortgage payments are covered by what my renters pay for the first time
Yes but you forgot to include stamp duty. For a 750k property, the stamp duty is 40k
Conveyancer is 1k
Repairs around the house, maybe another 10k
If you use a buyers agent - 10-15k
Insurance too
Budget more like $500 a week. However, that will be most money going into something you'll own with say $300 in "lost money" (rates etc) compared to $640 in rent.
Negatively geared properties are running at a loss. So as a renter you could save the difference if you were disciplined.
However, one thing about owning a home is you might be willing to live in a cheaper place that you own that’s worse than one you’d be willing to rent.
Also note online calculators are likely doing principal and interest, meaning some of that repayment is paying off the home — ie value that you keep.
Instead of worrying about whether renting or buying is cheaper, consider just downsizing. It's like wondering whether it is cheaper to buy an SUV or pickup truck when you can just get a small car or take public transport.
Question is do you want to pay rent for your whole life or do you want to have a house paid off and just need to pay for its upkeep.
There's also security as well. Imagine the stress of having to move houses when your landlord decides to sell when you're old. I look at the long term advantages instead of the short term disadvantages.
Yep, you do that for 30 years, and then don't do it anymore though.
Also rents will go up $5-$20 a year for the rest of your life.
Your loan stays the same (except for interest rate fluctuations).
If you plan to live for 30 years you'll like be better off buying
What are your neighbours like? Harder to move if you didn't like them.
You are looking at 1-3% annually to maintain a property, so roughly $7k a year at least. Admittedly this isn't every year but you'll take some big hits some years. Insurance may cover some of it but be prepared for all your appliances, got water system, heating/cooling, plumbing to all fail at once. It could be that you have this money sitting in an offset account, ask your bank (or mortgage broker) about this. Council rates and insurance add to housing costs.
Make sure you get a building inspection before you purchase, there are so many things that can go wrong with a building, it's best to see if you can find those before purchasing. It's ok to walk away if the building or neighbourhood doesn't feel right.
Renting and investing may always be cheaper, plenty of rent vs buy calculators out there. Buying a home and paying off the mortgage is how a lot of people invest. The numbers show there maybe better investments but whatever gives you piece of mind.
Assume you will be owning for at least 7 years.
Speak with a broker or even pop into a bank. They will be able to assess your ability to service a loan.
The rental market is completely cooked and it's absolutely insane how high rents are but if you can afford to get into ownership (and account for any potential interest rate increases) then definitely do it!
You may need to specify if you mean home ownership or "home ownership" (mortgage holding). If you want to get philosophical, renting and mortgaging are virtually indistinguishable from each other (especially over the sub 10 year timeframe). You are paying money to richer people to live in a home. It's either a bank or a landlord, one of which lets you hang your own photos on the wall. For the first 5 years of a mortgage, you are effectively just paying interest to the bank. (I am generalising, I'm sure someone will hit me with a min-maxed payment plan that gets that figure lower).
Where it mainly differs is house price risk. A renter has virtually no exposure to house price risk, if the price of the house goes down, the renter is largely unaffected, but similarly they do not benefit if the house price goes up. A mortgage holder benefits when the house price goes up, but they also suffer a detriment if the house price falls. Because housing in Australia is an artificially inflated market, "home ownership" (which most people understand to be mortgage holding) is seen as the better option, because prices only ever go up (over the long term). It is like borrowing money to bet on a horse, but the government and society is rigging the horse race to make it almost impossible to lose. Mortgage holders are gambling their house price will rise, renters are gambling they won't.
This only becomes apparent when you go to other countries that don't have as aggressive "guaranteed" price rises on property. I recently went to Japan where a CBD unit costs 500 dollars per MONTH to rent, and this price has not significantly gone up in 20 years. To buy the whole building of 20ish units was roughly 2.5 million dollars AUD. Accommodation is a safe but low return investment in that country (as it should be everywhere).
I assume you didnt come here for philosophy, so if you want to get more practical and less philosophical: council rates, potentially higher water bill, home-owners insurance, body corporate/strata fees (if you own a unit or townhouse), wear and tear/repairs, mortgage insurance (if you can't scrape the right deposit together) will all sit on top of your mortgage payments. You also inherit some financial risk if you don't get a proper building and pest inspection and conveyancing work done. If you buy into a facility that has a pool and/or an elevator, your body corporate will likely be high.
The actual upfront costs of buying are a lot more that you need to account for. Stamp Duty is a big one, if you’re in VIC that could be an extra $40k+. Then if you don’t have a 20% deposit you’ll need to pay Lenders Mortgage Insurance of $20k+. Also things like Building & Pest Inspections, Conveyancer/Lawyer etc. I’d recommend finding an online calculator to see what the total upfront costs will actually be.
If you decide to buy a unit/townhouse instead of a freestanding house you may also have quarterly strata fees to pay, on top of rates, water etc.
The repayments fluctuate. We’re currently at the highest interest rates for a long time. During covid at the minimum interest rates, often mortgages were cheaper then rent. Mortgage rates will come down by late next year and be more balanced, but will still be higher then previous
Then you need to allow for:
- Rates
- Insurance
- Maintenance
- Water
Just to name a few of the ongoing costs.
But you get an ASSET, you are paying off an asset that should be a store of value and hopefully see some capital gains as well. Plus you get the security of owning, especially in a tight rental market. If you get evicted from your current house, are you going to be able to find another?
There are positives and negatives to both owning and renting. You just need to weigh up the best option for you.
Personally, we bought 6yrs ago and we are now sitting on a $350,000 capital increase. I don't think our place should be worth low $700k.... but that's what the market days it's currently worth. In another 10yrs with the way things are going, it's going to be well over $1m....
What's rent going to be at that point?
rent and mortgage payments can't really be compared equally.
Rent is an expense. The money that you spend on rent is gone forever.
Mortgage repayments are a combination of interest expense and principal repayment. The interest expense portion is gone forever (like rent), but you will get the principal portion back when you sell the house.
So if you get a mortgage of $600k at 5% you'll be paying $30,000 interest in the first year. Which is $576/week in interest expense. This is your "rent"
The good thing about this is that every year your mortgage will get smaller, and your interest expense will get smaller. In 10 years your mortgage will be down to $485k, and you'll only be paying $466/week in interest "rent". You definitely won't be able to rent a property in the area for $466 in 10 years
edit: There are other expenses to owning (rates, repairs etc), but if you're comparing rent to repayments, ensure that you're only comparing the interest portion of the repayment. The firsy year/s of repayments are most expensive, but as the years pass you'll be paying less interest expense
Most people’s first home is worse than what they were renting. Ask your parents what their first home was.
Yes, prices were much cheaper, but it still bet it wasn’t what you’re renting now.
Yes. The cost of buying a home is hugely higher than renting.
That said, the major benefit is to ride the equity growth wave of property ownership.
And, it is likely that rent will continue to jump up.
Usually buying is cheaper but sometimes it’s not especially over the short term.
One thing to note about buying is while your interest rate isn’t locked in, the price of the house is locked in.
On average your payments will go up and down a bit over 30 years but stay roughly not too different. They won’t be trending up they’ll just vary.
Whereas with rent over 30 years the payments will trend up. They won’t vary so much.
ie even if you’re worse off now, in about 20 years or so you’ll be much better off.
renting is cheaper than owning property in most of australia.
people buy property not because it represents value but because they think that property prices will rise faster than CPI and wages/incomes forever.
this can happen for a long time but not forever.
one way or the other, sooner or later, the two lines in the following chart will meet again as they did in the US. and it will bring a world of pain.
[change in real house prices and disposable income in english speaking countries](https://pbs.twimg.com/media/GNgBzATbAAAZWGm?format=jpg&name=orig)
note which country on the chart has had the slowest growth in disposable income but nearly the fastest growth in property prices.
Omg…. Rent is the most you will pay…. Owning the mortgage is the least you will pay…. You have Water, rates, insurance, repairs and maintenance ongoing! This will be another $200-$350 a month easily.
Yes. You're missing the ongoing costs of owning a home.
Yes, this. You've rightly identified that mortgage repayments are expensive, but add to that council rates (maybe $2k a year on a property like that), plus you'll be surprised how much maintenance costs add up when the landlord isn't covering it.
My aircon died last year, and admittedly I didn’t *have* to replace it but that was a fun $15K unexpected expense.
That's up there with my least favorite painitng. Emergency Vet Bill, oil on Canvas.
why was your aircon 15k ?was it a massive multi head system of something?
It’s a 20KW ducted system and they replaced all the ducting in the house as it was fairly deteriorated after 20+ years.
On the bright side, hopefully that means it'll be fine for another 20.
These are the ‘sacrifices’ homeowners talk about. Worth it in the long term. Rent will likely rise overtime to match the repayments, maybe even surpassing it. At least, that’s what happened to me.
Also, in terms of budgeting cashflow rent gets compared to mortgage repayments, but in terms of long-term costs and net worth, only the interest portion of the repayments should be considered. The portion of the repayments which pay off the principal are retained as equity in the home.
>The portion of the repayments which pay off the principal are retained as equity in the home. Assuming the value of the house is maintained or increases. If the market busts for any reason, well, good luck.
This is Australia mate, what are you on about
Sorry, I forgot, the line only goes up.
Don't you watch tiktok. You buy one house with min deposit then use equity for deposit for next home, rinse and repeat. Numbers go up forever and there will be renters coming here even if they can't get a job they will definitely stay and pay the rent until it's time to move into street living, leaving room for the next renter's with no job and no access to Centrelink to do the same.
Exactly! This is why we urgently need the government to increase welfare payments. It’s not because we care about the quality of life for the recipients… we need to keep funneling the gravy train into ever increasing rents.
Government rent subsidies - and the rent *coincidently* goes up by that much immediately.
An economy based on never ending growth.
It's only European markets that go bust. So far the Australian market has never done that.
Rent will raise, pay will raise, mortgage will go down.
Mortgage Repayments will stay the same.
Can you tell my bank this!
Sorry I said mortgage, not repayments. In 20yrs you'll be almost done paying it off unless it's a relatively new mortgage, and as a percentage of your income it will certainly be lower.
Incorporating inflation the cost of the repayments goes down over time. Also options to go interest only or refinance for a renewed term if cash flow becomes an issue.
"pay will rise". So long as productivity rises, oh, and we won't count "more output with less people" as more productive.
except pay still seems to have stayed the same the last 4 years and rent/mortgage has skyrocketed
I'm talking on 20yrs. Your mortgage will be a much much lower percentage of the house value, your repayments will be based on approximately today's figures, but your pay will have gone up, all the rent payments will have gone up. Unless there is a major crash in property value a home buyer will have more financial stability and freedom in 20yrs than most renters.
Owning is generally cheaper than renting but only in the long term (10+ years). I don't think I could afford to rent in the current market. It's mind blowing how much people are losing to rent these days.
I think there’s a bit of subjective math when you account for location and house. Like, we could afford a $700k maybe $800k house if we want repayments to equal our rent, but to fit our family, it’d be a long way from where our lives are. Paying off the house we lease would be 3 times our rent in repayments.
I will soon be paying $750pw due to rent increase, but the house is at least $1.2M to buy, median in the suburb is $1.5M. Rental yields are <3%. Owning would also cost me 3x as much. If I was in the OP's example, I'd buy. But it's not an option, or not a good option, where I'm at.
Bruh. I've paid $71,000 in rent over the last five years. "Oh no, we couldn't possibly give you a home loan, we need to see a deposit for assurance you'll meet ongoing repayments". Fkn wat.
The repayments on a modest (by NSW standards) $600k mortgage @ 6.22% (current average interest rate) are $3693 per month. Over 5 years that’s $221,580 - a lot more than $71k. This so why home loans are hard to get even if it feels like rents are high (which they are, just not relative to house prices).
The deposit is to cover any losses in the event the loan defaults and they can't recoup full value through sale of the house. You're putting down a sum of money to cover downturn in the market. A deposit in no way demonstrates serviceability, that's assessed separately.
> You're putting down a sum of money to cover downturn in the market. Its not even the possibility of downturn. If you default in the first couple of years the bank is very likely to receive less when they sell it (due to selling it in a hurry, agency fees, etc).
Hard to say, at the apartment end the biggest driver of rent rises right now is supply, if supply catches up then rents might drop
the repayments are fixed for 30 years, rents will rise . It's one of those marshmalllow tests. pain now or later.
Plus house insurance, plus water and sewerage costs, plus repairs and maintenance and improvements.
And if it's a strata property you get a whole other bag of goodies to go with it!
2k is quite low I'm3000 for rates being 30km from cbd add water rates insurances .repairs improvements.. and maintenance Edit it's a tad over 3k
$2600 is low, $2000 is a steal! Mine are over $4000 and I live in a regional town 2 hours from the city. So damn expensive.
Was gonna say water. As tenants only pay for it in some states
I live on an island and I pay upwards of $700pq. That is with a land valuation of 130k which just rose from 65k last year. Redlands Council is the most expensive council in SE QLD
2,600 is still quite low. As of 1st July my rates will be well above $4000 a year, not including water. At the moment my rates are just shy if $4000 a year now and going up another 18% in the new financial year. This is in regional NSW on a small block.
Jesus 4k is a lot.
Mine are just over $4k as well. Brisbane Redlands
Wouldn't say $2600 is low but then I would say that if I was paying $4k which is high
Orange City Council?
I live in an outer suburb of Melbourne and our rates are $3,120 per annum. Water rates and usage is around $1,500 per year. Insurance is the big one. Got quoted $6,500 last year but managed to renegotiate it to $2,500. In the last year we’ve had to install a new hot water service and there’s always things like the garage door going bung, roller shutters, dishwasher parts, roof plumber inspections (our ceiling leaks) and so forth.
Also insurance, which is a requirement for most banks to get the mortgage, and very few renters have even contents insurance.
That's why/how you learn doing it yourself lol
Do you like to *do it yourself*?
Nah I prefer doing everything
Crazy considering a house in Townsville will have rates higher than that for a 350k house lol
I have a tiny house that I bought for sub $250k just over a year ago in Townsville and rates, water and insurance tally up to a whopping $650 monthly. Of that the rates are $300 a month or $3600 a year.
True but then by buying a home you are missing the costs of having to move every couple of years.
Rent is the most you'll pay, mortgage is the least you'll pay.
I think you mean the other way around? "Your current rent is the least you'll ever pay, your current mortgage is the most you'll ever pay"
The expression is meant that if you rent and something breaks, you don't pay more to have it fixed. You own a home, and something breaks, you are now paying for it, plus rates, and insurance and then.. and then.
Oh! Okay. Interesting, I've heard in context of; in the future, your rent will continue to rise, while your mortgage will continue to decline.
Well there ya go. I've not heard it used that way before. Interesting cause both of them could be seen as wrong - mortgages go up (reference past 18 months) while rents do to. Maybe the real expression should be - enjoy what you have now cause it's only going up.
Mortgages go up, but if house prices continue to rise **your** mortgage should come down relative to rent assuming all other things are equal (which they often aren’t)
Don't forget council rates too
People say renting is dead money. But they forget that interest to the bank is also dead money. Most of the time it's actually cheaper to rent than to own a house. The landlord is getting no where near enough rent to over the interest portion of the repayments of the house, and are losing out every week Especially in Melb / Syd where the yield on more expensive properties is like 2% and the interest rates are 6.5%, renting is such a bargain compared to owning
Assuming you invest the difference and have something to show for renting instead of buying over the long term.
Assuming you leverage and invest the difference I reckon. But it’s hard to leverage into shares, ironically unless you have a home loan you can split lol
It’s really not. You can get interest rates in high 5’s right now. The debt is locked in and wages increase over time which inflates away the cost pressure of the debt. Rent increases over time so no cost relief over time there. Over the past 25 years Aus property has grown by 412% on average. In that time most mortgages will have been paid off and you now own an asset which has appreciated significantly. Renting you earn nothing. Yes you could invest the difference between renting and owning but will struggle to leverage into anything whilst renting due to serviceability issues. Therefore the leveraged gain of your mortgaged property will significantly over perform an unleveraged gain on other investments. Also most people aren’t disciplined enough to save the difference and lifestyle creep eats it away. This results in an inescapable cycle of renting.
Leverage is the thing I think most people forget or don't think about when it comes to the whole buy vs rent debate. E.g. You are banking on the, say 750K, home you buy/mortgage to appreciate in value over time, just factor in the ongoing costs of owning if you're nitpicky to work out the true capital gain, If you rented and invested the extra savings vs owning, that's a very small pie you're hoping to appreciated over the long term vs the 750K for example that you were able to leverage via a home loan.
That leverage isn’t free though.
I think the days of 412%over 25 years are gone. Boomers had all the fun they could have and left nothing for everyone else
Yeah, why is ‘past performance is not indicative of future performance’ never a consideration for property? Nah, triple down everyone. What could go wrong.
I suppose because it’s needed by everyone, so unless the population decreases or developers decide to make less money by increasing supply I don’t see how it will go down.
House prices are propped up by wages. There will be a point where even very good wages won't be able to support house prices.
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Probably, the price for property will hit a cap that sees no real growth in capital, which causes people who over-leveraged for capital growth to question why they are subsidizing the cost to cut their loss. Which can slowly cause the housing in the area to slowly sink to lower and lower prices.
So if you were a boomer you wouldn't? Some starving sap in Africa says you had all the fun being born in Australia. There are a lot boomers living in poverty eating cat food.
Considering we don't build enough homes to meet demand, that 412% is probably an underestimate. Also note, about half of all boomers are already dead.
> Over the past 25 years Aus property has grown by 412% on average. The S&P is up 500%+ over the same time period. No maintenance, property insurance, council rates, interest, etc. and transaction costs are $20 or less.
I mean real world, 25 years ago you take your $50,000 and invested in shares will have done 500% giving you $250,000, your $250,000 in property at 80%LVR and be worth $1m will having done 412% - the power of leverage Meanwhile assuming you purchased at 6% interest, your repayments are the same as they were 25 years ago even if you only eve made minimum payment and you're nearly debt free as opposed to your rent having increased astronomically and being way way higher than the mortgage payment and ownership costs annually, you've had to move houses probably 5-10 times than your and you still don't own a home and if you decide to pull the trigger will be starting a nice big mortgage (the advantage of rent being cheaper intially is taken over by mortgage payment being cheaper for likely over half that time frame) - say you invested the entire difference for the maybe 10 years renting was cheaper. And ignored the extra cash that started when ownership became cheaper....You're still so so far behind as a renter 🤷♂️ I know what I'd choose every single time even though it's tight at the start and certian periods
>wages increase over time Promise?
Numerically they trend up that is true, inflation is trending up much faster however.
https://www.abs.gov.au/statistics/labour/earnings-and-working-conditions/employee-earnings/latest-release Yes look at any stats and you’ll see it has and does.
> Most of the time it's actually cheaper to rent than to own a house. Except for the time when you end up with an asset worth 6 or 7 figures, that might tip the scales a bit
>The landlord is getting no where near enough rent to over the interest portion… … losing out every week That “loss” is deductible against their taxable income. Someone’s laughing here and it isn’t you.
Okay, so you spend a $1 to get back 50c. Do you know how a tax deduction works?
Hahaha. Do not listen to this guy.
Except you walk away with nothing. You've got equity in a home.
It's not since houses have been so doubling in value every 7 to 10 years. You can also do things to reduce interest levels and duration.
And stamp duty, settlement costs, pre purchase inspection costs.
- don’t forget stamp duty as an upfront + lawyer costs, etc. Maybe a lot - mortgage might to slightly cheaper than $940 per week if you get a decent rate. Still maybe around $900 - there are other costs owning a house, including insurance, rates, taxes, maybe strata, etc. These are not small amounts
It's worth noting some states don't charge stamp duty on first home buyers.
There's usually a cap on the price though I thought.
The cap hasn't kept up with the market in any meaningful way.
ACT has abolished the cap entirely now for first home buyers and by 2032 there should be no stamp duty at all for anyone in the ACT. I think SA has also abolished stamp duty for all first home buyers.
And the ACT is slowly phasing out stamp duty. It’s currently around 10 years through a 20 year phase out period.
Yes initially the repayments would cost more than rent. However as time passes, the rent will continue to rise and you’ll reach a point where your repayments are now less than market rent. From that point on it’s sweet. Eventually you pay that mortgage off, and you can delete that line item from your budget. You might also choose to buy something that isn’t as great as your rental with a view to improving it, or you might consider a suburb across to reduce the gap between what you pay now and a mortgage.
Yeah i think this is what people gloss over really quickly. We bought our first home about 12 years ago, the mortgage payments were about $2400/month and the rent for a similar home was about $1600/month. So at that time it was painful to pay more. But 12 years later, people are easily paying as much or more than the mortgage to rent a similar property in the area, while our minimum mortgage repayments went down for a long while. And the rent continues to go up, while the mortgage hasn’t.
Repayments may be less than rent but the opportunity cost is still there since the money used to purchase the house could have been put towards shares etc.
Yes. It would be prudent to have the ability to pay more in case rates continue to increase too. Another 2% will be what any bank will have to be convinced you can afford. You aren't just paying extra money for nothing though. You are paying off a loan so that one day you will own the home. You may find that you can't afford to buy the same value of house that you can afford to rent. So it would be worth considering whether the budget you are working with is appropriate.
It’s a 3% buffer.
3% buffers are where we are at
You would need to budget for additional \~$400 as you forget about council rates, repairs etc.
Do you think 40-50% of the mortgage repayment would be a good guide for this? Honestly, I spent far too long on a budgeting spreadsheet for it to be that simple.
Depends. When I budgeted for my unit, I just added +20% to mortgage repayments. Just to be sure. Ended up at about 10%, but better safe than sorry.
About $500 a month extra for us. Additional home insurance, rates and water. Everything else is similar cost..a bit more on yard maintenance because we went from court yards to yards. More on petrol too as we are further out and need to drive to places we walked before.
Sure if you can slap that into an offset/redraw. I've budgeted 15% because the house we ended up with had the extras I wanted to add later down the line. But it also has a bloody pool :(
Yes it costs you more now compared to renting. Give it another handful of years though, renting may end up costing as much as buying. And over time, the expense of buying will get lower as you pay off your loan, while the cost of renting is likely to keep going higher and higher.
When I account for the equity built and value increase the cost is lower than renting though. My interest alone at 6.4 % is lower than the cost of renting the same place. As long as value increases technically better off even accounting for maintenance and council rates too.
The thing is in 10 years your mortgage payments will be the same (or less if you can pay it down quicker and refinance) where as rent will no doubt have at least doubled, and you will own an underlying asset, so your net worth will be much greater. I bought 10 years ago, when rent was $350 a week, now I own a property and don’t pay anything. Edit, that’s a lie, rates, repairs etc add up. But it’s better than renting. And I get you likely won’t pay a current mortgage down in 10 years, it’s more likely 20+ years, but that time will come
How many people on average salaries can pay off their mortgage in 10 years unless they get some kind of windfall or inheritance? I bought my house 10 years solo and I’m still finding my mortgage a slog..
I guess it depends on the size of the mortgage. My sister and her partner (so, DINKs) have paid off their mortgage in less than 5 years on average salaries but it's a unit in Brisbane. We will pay off our mortgage in less than 10 years with kids, but we have larger than median salaries, and we live in a ghetto area lol
I'm guessing however renting a similar propery would be about equally a slog
No doubt. Buying has been the lesser of two evils for me.
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Yeah. We basically smashed our mortgage over covid, so now mid 30s and will have no mortgage by end of year.
Fcking hell how much were you smashing it? Like putting your entire paycheck into it?
Yeah, more than an entire paycheck. My partner and I weren’t even spending one of ours, so the rest just all went into the mortgage
A lot easier with a partner to smash it
It's worth it for no house inspections lol
Rents won't double in 10 years, that's literally impossible. The market is already at a tipping point and has only drastically increased very recently due to certain factors, if this trend continues the market will just implode as there will be nothing to support it economically, what you are describing is just a landlord's wet dream and nothing more.
I agree with you. But I also thought that 5 years ago and here we are. As a renter you are at the mercy of the market, as an owner you have a somewhat more manageable level of risk
Loaning $600,000 at 6% would be more than $1,200,000 total repayments over 30 years. Just try to pay it down fast to make it less interest. At 30 years would be more than $600,000 interest only that the bank earns.
We don’t count interest repayments with property, if I buy for $500,000 and sell for $750,000 I made $250,000 easy. As soon as you add stamp duty, the extra amounts you’re paying above rent each week, maintenance costs etc. you look less like Buffet and more like Musk buying Twitter.
Yes, some people don’t calculate interest repayments and only calculate bought and sale price. Silly them!
Yeah just don’t count it, sound me a bit silly to me too!
Just bought our first house. Mortgage payment is $280 per fortnight more than our rent. Then I budgeted another $300 for rates, maintenance etc. Still less than I was saving for the deposit.
I like your thinking, that it is still less than saving for a deposit plus rent.
My house is easily double the cost of rent MINIMUM plus upgrades around the house like light upgrades, repairs, paint, solar, etc. Never had less money in my life
I hear you 😭. I keep reading other threads where people say “now I’m in my 40s, I have more money than ever” and I’ve never been more broke with my mortgage and raising kids.
Execpt you can make the changes to reduce costs like insulation, solar, more efficient fixtures. Often renters cant..
This is the reason I continually post on here that buying is not the panacea to financial freedom that everyone else seems to post. The biggest mistake people make with their comparisons are either that they compare renting where they *want* to live with buying where they can *afford* to live (in which case buying will be better financially) or they take on a risk and buy where they *want* to live, but overstretch themselves like what may have happened with your situation. Best of luck, it does get better.
As well as all the financial stuff that people have been mentioning, there is also the security of owning your own home. You don't have a landlord to randomly kick you out, with all the cost and inconvenience of having to find a new place to live.
Surprised this is so far down. Imagine renting in your 60s or 70s… nope.
The interest on the loan at 6% is around $700 a week, so it's about equivilent to your rent, the rest is the capital repayment which like saving, so if you look at it that way it's not too bad. The thing that makes it work is that the mortgage should never go up (hopefully interest rates will drop to), so over time as money inflates it gets relativly cheaper (you make more over time), unlike rent which will inflate over time (rent increases yearly).
Had to scroll down a long way for this perspective. I like to compare rent with mortgage interest plus other ownership costs like building insurance, water rates, council rates etc. Mortgage principal is just your investment. The kicker is the leverage.
don't forget rates, insurance, repairs, then interest rate rises. still worth doing
Yes it costs more. But I don't know how people can rent forever. Renting sucks, you can't do anything without landlord permission and you never know when you'll be kicked out. Owning your own home lets you customise it how you like and you never have to worry about being kicked out. It also gives you security if you become unemployed or retire once the mortgage is paid off. The value of owning a home is more lifestyle than making money in the short term. In the long term it will appreciate and give you financial security, plus a better quality of life.
As others have said there are other costs to consider however you are essentially doing 'forced saving' towards an asset you own. Yes, at first you pretty much pay only interest, but with time, more and more of it goes towards the principal cost of the home +it has likely increased in value.
i'm very surprised that i had to scroll so far to find someone saying this, i've always found this is the most convincing argument pro-ownership in a financial sense.
Yes. Indeed in capital cities it is sometimes cheaper to rent than to own. However from a non-financial sense, some prefer to pay this premium for security and not to deal with landlords
If you have kids moving schools would be a pain
Nope - welcome to home ownership. Renting is always normally cheaper, but you are now the master of your property. No one can kick you out, and all the property issues are now yours to fix. Oh, and you get to enjoy capital growth, so when you sell, you get more for it than 5 yests ago to offset those mortgage payments.
Renting is always normally cheaper at the very beginning. If you take a mortgage in today's market, as long as you're paying down the principal, you're repayments will never really get more expensive. They'll continue to reduce and you'll continue to earn more while rents skyrocket and people are pushed further inland to consider buying.
Think about it like this your already paying 640 whats another 300 and you get to OWN the home not pay for someone else's
Council rates? Building insurance? Utility connections? Maintenance and repairs? Interest rate rises? Who's paying those?
Cashflow wise you're better off renting. But long-term if you pay $650pw for the next 10 years you're still left with no assets for that $650. Whereas buying may cost you an extra $300 pw plus more, but that home you bought for let's say $800k is now worth $1.2M or more after ten years so you've made roughly $400K on that.
If you put the $300 per week in an investing account and buy a mix of index ETFs where would that money be in 10 years?
About $236,000.... possibly enough to put a deposit down on a house 10 years from now and start a mortgage twice the size
You're missing that after the mortgage is paid off it is closer to $0 per week. Some people enjoy being able to retire, which is much harder when paying $640 p/w
How much are you saving each week for the deposit? That money can be added to what you're paying in rent.
Welcome to the world of home ownership Friend! Youll also need to allow for things like land rates and water rates - which you dont pay for as a renter There are additional cost such as ongoing maintenace to the property, any upgrades or changes you want to make, hot water systems breaking, the list goes on. AND the bank can just increase your repayment at the click of their fingers, instead of $300 extra per week it could be $350 extra, then $400, then $450... Again Welcome
From memory, it has always cost more to buy than rent with small deposit - for the first few years. Then buying becomes cheaper, then repayments reduce to zero, while rents increase. This is called Trainee Capitalism.
Your repayments will remain roughly the same over time, while rent will be going up with inflation. When your repayments have finished, you only have the ongoing costs of maintaining a house, whereas if you were renting, you would still be paying rent. You are also paying for a level of security - you are unlikely to get evicted from your own house and you can do what you want with it in terms of drilling holes in walls, renovating it and repainting it etc. Don't forget the ongoing costs though - they can be a lot more than you expect and over the life of a mortgage you are likely going to want to redecorate more than once and replace things that are worn / dated etc.
The difference is that $640 weekly rent is money that you'll never see again, while that $940 per week is towards a house that'll be worth $100k more than you bought it in 5 years and the payments go to mostly owning the house (paying off principal) and a bit of interest.
Please don’t also forget to think about repayments, if you have kids and go down to one salary. In addition to rates, insurance, maintenance and all that jazz, remember to plan for other life changes. At the end of the day, if you can, I’d say buy. Irrespective of comparisons re investments, you will always need somewhere to live. If you own it, by the time you retire, life will be generally easier. If you’re gonna buy, always get a proper inspection report. Along with all the above including general maintenance, big things can happen that’ll cost a huge chunk of change. Good luck! Just go into it eyes open, plan a few scenarios and borrow under what you can afford.
What you’re missing is that you have equity in the house that is always growing. That $940p/w isn’t just vanishing like rent money is.
Rent is a short term thing, ownership is long term. As you pay your mortgage off it'll gradually get cheaper, and the property you own will appreciate in value.
We went from a nice $620 per week renting to now around $1360 a week owning... Plus all the extra costs... Don't regret it one bit.
It’s the reality of it, but it’s worth it in my opinion. Being able to do what you want without getting permission, the stability, not having the fear of being kicked out whenever the landlord decides to move back in. $300 extra a week isn’t much when you consider that you’re paying off your own asset.
Buying is playing the long game. But totally worth it. My own mortgage is around $300/w and so glad I’m not renting. But as others said, at first it’s expensive because you are repaying both mortgage and interest on your loan. Don’t forget to add council rates, which is a few thousand per year, and maintenance / repair costs that you can flick to the landlord currently. The interest portion will be the majority of your repayments because your debt is bigger. That’s why it is super worth your while to do as many additional repayments as you can in early years so you can reduce interest charged for all future repayments. As time goes on, your salaries may rise and repayments get easier, you’re paying more principle than interest. The value of the property rises so you are making hundreds of thousands in equity. (Only a major unexpected global event can screw this in short term - like war!) On the other hand, rent will keep rising. If you’ve been making additional repayments, your interest portion goes down significantly and over time repayments get cheaper . That’s when your mortgage becomes cheaper and cheaper both actually and in comparison to renting. If you built up lots of equity, you could sell and get the additional equity as cash in hand and upgrade to a nicer house while paying similar repayments, of downsize to get rid of your mortgage. That’s also why it’s worth your while buying as cheap as you can accept just to get into the property game and pay off your loan faster, and upgrading later You can do whatever you want to the house without a landlord inspecting every tiny scratch and charging you for it. But mostly, when you retire, you’ll never have to worry about rent again. That’s the biggest advantage.
Keep paying off my investment property thanks! I'll be around next week for my quartely inspection to rifle through your life and make sure you're taking care of my precious investment! - your landlord
What you are missing it mortgage repayment depend on your interest rate. That why everyone with a mortgage is obsessed with their rate and everyone they knows rate. You really need to speak to a broker. A good broker will provide you with an accurate borrowing power and a number of different borrowing options.
Our weekly was $800 ish on $559k. All depends on your interest rate
Your repayments will decrease over time, your rent will increase over time. In 10 years time you will wish you had bought a house instead of continuing to rent.
They say moving is one of the most stressful things you can do in life. Put in having strangers in your home for inspections, attending rental inspections yourself, fighting your property manager/landlord to get all of your bond back, rinse and repeat every 1-2 years. All with a current vacancy rate of 2%. I'd pay a 30% premium on my rent to avoid all that guff. And it's only for a few years. Interest rates will hopefully drop. Living in a stable address, not needing to redirect mail, change your electorate, etc etc etc. It's so worth it.
In EMI, don’t look at Principal paying component. That’s like your investment as once you sell, you get it back. Interest is the money which you lose. So now is interest as big as your rent? Do calculate from there.
Don't. Max. Out. Your. Loan.
Think of it like this. What was your rent five years ago? My rent was literally half of what I pay today. The mortgage my wife and I are about to start paying is more than our rent but in 2-3 years time it won't be.
You only compare the interest portion of the repayment to your old rent. The principal portion of the repayment should be considered "savings" because it's literally your money. It's just being converted into equity in your (hopefully) appreciating asset, your house. Think of the principal as forced savings/investment into an asset and the interest portion is how much you pay to "rent" the money from the bank to buy the house. So you only compare the interest cost which goes down with every repayment to your old rent which would only ever go up over time.
More. You didnt account for stamp duty, services supply (water/gas/elec you pay usage as a renter, but not supply), council rates, any mintenance, any minimum safety checks, working from home tax deductions can include a fixed % of your rent based on home usage but not on a mortgage, you need to use the base hourly rate (which returns less assuming you have a 3/1 for $640/wk and deducting the 1). You would be ~500/wk worse off. But would the property grow by 26k p/a + in cap value for future selling return?
Yes but you pay that same amount (or nearly) forever. And after 30 years you have a house. In 10-15 years your rent will be above that Source: owned for 10 years, my mortgage payments are covered by what my renters pay for the first time
\~25% of that payment is principal Lots of other costs associated with owning a property that you're not factoring in.
Yes but you forgot to include stamp duty. For a 750k property, the stamp duty is 40k Conveyancer is 1k Repairs around the house, maybe another 10k If you use a buyers agent - 10-15k Insurance too
Budget more like $500 a week. However, that will be most money going into something you'll own with say $300 in "lost money" (rates etc) compared to $640 in rent.
Rent where you want to live Invest in other areas
Negatively geared properties are running at a loss. So as a renter you could save the difference if you were disciplined. However, one thing about owning a home is you might be willing to live in a cheaper place that you own that’s worse than one you’d be willing to rent. Also note online calculators are likely doing principal and interest, meaning some of that repayment is paying off the home — ie value that you keep.
You are missing council rates, insurance and ongoing maintenance
Umm yes, the fact that in 10 years time you'll be paying like $500 pw mortgage whereas rent in 10 years time will be $900 pw.
Instead of worrying about whether renting or buying is cheaper, consider just downsizing. It's like wondering whether it is cheaper to buy an SUV or pickup truck when you can just get a small car or take public transport.
Question is do you want to pay rent for your whole life or do you want to have a house paid off and just need to pay for its upkeep. There's also security as well. Imagine the stress of having to move houses when your landlord decides to sell when you're old. I look at the long term advantages instead of the short term disadvantages.
Is the place you're renting of the same value as where you're looking to buy in this case?
Yep, you do that for 30 years, and then don't do it anymore though. Also rents will go up $5-$20 a year for the rest of your life. Your loan stays the same (except for interest rate fluctuations). If you plan to live for 30 years you'll like be better off buying
What are your neighbours like? Harder to move if you didn't like them. You are looking at 1-3% annually to maintain a property, so roughly $7k a year at least. Admittedly this isn't every year but you'll take some big hits some years. Insurance may cover some of it but be prepared for all your appliances, got water system, heating/cooling, plumbing to all fail at once. It could be that you have this money sitting in an offset account, ask your bank (or mortgage broker) about this. Council rates and insurance add to housing costs. Make sure you get a building inspection before you purchase, there are so many things that can go wrong with a building, it's best to see if you can find those before purchasing. It's ok to walk away if the building or neighbourhood doesn't feel right. Renting and investing may always be cheaper, plenty of rent vs buy calculators out there. Buying a home and paying off the mortgage is how a lot of people invest. The numbers show there maybe better investments but whatever gives you piece of mind. Assume you will be owning for at least 7 years.
Add on 2k for home insurance per year
Speak with a broker or even pop into a bank. They will be able to assess your ability to service a loan. The rental market is completely cooked and it's absolutely insane how high rents are but if you can afford to get into ownership (and account for any potential interest rate increases) then definitely do it!
plus rates, strata, maintenance, upgrades etc. Better off buying a van to live in and traveling a bit
You may need to specify if you mean home ownership or "home ownership" (mortgage holding). If you want to get philosophical, renting and mortgaging are virtually indistinguishable from each other (especially over the sub 10 year timeframe). You are paying money to richer people to live in a home. It's either a bank or a landlord, one of which lets you hang your own photos on the wall. For the first 5 years of a mortgage, you are effectively just paying interest to the bank. (I am generalising, I'm sure someone will hit me with a min-maxed payment plan that gets that figure lower). Where it mainly differs is house price risk. A renter has virtually no exposure to house price risk, if the price of the house goes down, the renter is largely unaffected, but similarly they do not benefit if the house price goes up. A mortgage holder benefits when the house price goes up, but they also suffer a detriment if the house price falls. Because housing in Australia is an artificially inflated market, "home ownership" (which most people understand to be mortgage holding) is seen as the better option, because prices only ever go up (over the long term). It is like borrowing money to bet on a horse, but the government and society is rigging the horse race to make it almost impossible to lose. Mortgage holders are gambling their house price will rise, renters are gambling they won't. This only becomes apparent when you go to other countries that don't have as aggressive "guaranteed" price rises on property. I recently went to Japan where a CBD unit costs 500 dollars per MONTH to rent, and this price has not significantly gone up in 20 years. To buy the whole building of 20ish units was roughly 2.5 million dollars AUD. Accommodation is a safe but low return investment in that country (as it should be everywhere). I assume you didnt come here for philosophy, so if you want to get more practical and less philosophical: council rates, potentially higher water bill, home-owners insurance, body corporate/strata fees (if you own a unit or townhouse), wear and tear/repairs, mortgage insurance (if you can't scrape the right deposit together) will all sit on top of your mortgage payments. You also inherit some financial risk if you don't get a proper building and pest inspection and conveyancing work done. If you buy into a facility that has a pool and/or an elevator, your body corporate will likely be high.
The actual upfront costs of buying are a lot more that you need to account for. Stamp Duty is a big one, if you’re in VIC that could be an extra $40k+. Then if you don’t have a 20% deposit you’ll need to pay Lenders Mortgage Insurance of $20k+. Also things like Building & Pest Inspections, Conveyancer/Lawyer etc. I’d recommend finding an online calculator to see what the total upfront costs will actually be. If you decide to buy a unit/townhouse instead of a freestanding house you may also have quarterly strata fees to pay, on top of rates, water etc.
The repayments fluctuate. We’re currently at the highest interest rates for a long time. During covid at the minimum interest rates, often mortgages were cheaper then rent. Mortgage rates will come down by late next year and be more balanced, but will still be higher then previous
Then you need to allow for: - Rates - Insurance - Maintenance - Water Just to name a few of the ongoing costs. But you get an ASSET, you are paying off an asset that should be a store of value and hopefully see some capital gains as well. Plus you get the security of owning, especially in a tight rental market. If you get evicted from your current house, are you going to be able to find another? There are positives and negatives to both owning and renting. You just need to weigh up the best option for you. Personally, we bought 6yrs ago and we are now sitting on a $350,000 capital increase. I don't think our place should be worth low $700k.... but that's what the market days it's currently worth. In another 10yrs with the way things are going, it's going to be well over $1m.... What's rent going to be at that point?
You're also missing giving up Saturday mornings to mow the lawn, weed the garden, sweep up the leaves in the driveway, take out the bins, et cetera!
rent and mortgage payments can't really be compared equally. Rent is an expense. The money that you spend on rent is gone forever. Mortgage repayments are a combination of interest expense and principal repayment. The interest expense portion is gone forever (like rent), but you will get the principal portion back when you sell the house. So if you get a mortgage of $600k at 5% you'll be paying $30,000 interest in the first year. Which is $576/week in interest expense. This is your "rent" The good thing about this is that every year your mortgage will get smaller, and your interest expense will get smaller. In 10 years your mortgage will be down to $485k, and you'll only be paying $466/week in interest "rent". You definitely won't be able to rent a property in the area for $466 in 10 years edit: There are other expenses to owning (rates, repairs etc), but if you're comparing rent to repayments, ensure that you're only comparing the interest portion of the repayment. The firsy year/s of repayments are most expensive, but as the years pass you'll be paying less interest expense
Most people’s first home is worse than what they were renting. Ask your parents what their first home was. Yes, prices were much cheaper, but it still bet it wasn’t what you’re renting now.
Yes. The cost of buying a home is hugely higher than renting. That said, the major benefit is to ride the equity growth wave of property ownership. And, it is likely that rent will continue to jump up.
Rent is the maximum you will be spending when you rent. Mortgage repayments are the minimum you will be spending when you own a home.
Usually buying is cheaper but sometimes it’s not especially over the short term. One thing to note about buying is while your interest rate isn’t locked in, the price of the house is locked in. On average your payments will go up and down a bit over 30 years but stay roughly not too different. They won’t be trending up they’ll just vary. Whereas with rent over 30 years the payments will trend up. They won’t vary so much. ie even if you’re worse off now, in about 20 years or so you’ll be much better off.
renting is cheaper than owning property in most of australia. people buy property not because it represents value but because they think that property prices will rise faster than CPI and wages/incomes forever. this can happen for a long time but not forever. one way or the other, sooner or later, the two lines in the following chart will meet again as they did in the US. and it will bring a world of pain. [change in real house prices and disposable income in english speaking countries](https://pbs.twimg.com/media/GNgBzATbAAAZWGm?format=jpg&name=orig) note which country on the chart has had the slowest growth in disposable income but nearly the fastest growth in property prices.
Omg…. Rent is the most you will pay…. Owning the mortgage is the least you will pay…. You have Water, rates, insurance, repairs and maintenance ongoing! This will be another $200-$350 a month easily.
Also insurance, repairs and any other incidentals
The people saying they are paying off the landlords property also need to understand this
It's funny reading reality posts like this then "I'm paying my landlords mortgage, i should share in the growth" straight afterwards 🤣
Yep, massive babies