Its My Home : Its my home 2018
IT’S MY HOME IT’S MY HOME 47 A s house prices continue to rise so does the amount of the deposit required in order to purchase a property. In January 2013, the median Australian house price was $481,496 which would have required a standard 20 per cent deposit around $96,299. Just five years later, with median house prices increasing over 44 per cent, the median house price in January 2018 was $694,683, meaning the standard 20 per cent deposit required would be $138,937. There is always plenty of debate in the media and on the internet about renting versus buying and which makes the most financial sense. So which option is better? Should you look to purchase a home or continue renting? Let’s see how the numbers stack up. OSCAR AND MIA are buying their first home and have found a property valued at $575,000. They have managed to save just over $62,000 for their deposit and fees. Their lender has advised that as they don’t have a 20 per cent deposit, they have a couple of options to consider. The first is to delay purchasing their home and continue to save for a few more years. The second is they could purchase their home now using lenders mortgage insurance (LMI). Let’s look more closely at these two scenarios. Both scenarios are based on the couple having $3,400 available income per month. Currently they are paying $2,400 in rent and saving $1,000 per month. Firstly, let’s look at what would have happened if Oscar and Mia had decided to delay purchasing their home and continued to save for a 20 per cent deposit. n It would take Oscar and Mia a further eight years to save a 20 per cent deposit based on current savings of $1,000 per month n Total rent paid over eight years $230,400 (based on current rental $2,400 per month) n Total additional savings $96,000 (excluding interest) n Based on the initial property value of $575,000 and average growth of four per cent per annum, the property would now be valued at $784,359 n This means the couple now need $156,872 to have the 20 per cent required deposit. ➤➤ BUY OR RENT? SHOULD YOU LOOK TO PURCHASE A HOME OR CONTINUE RENTING? Now let’s look at what would have happened if the couple had bought their property using LMI, rather than waiting to save a larger deposit. n LMI premium paid $23,298 which they capitalised into their loan, making the total loan $557,663 n Over the eight years, the couple have reduced their home loan balance to $453,421 n Based on the initial property value of at $575,000 and average growth of four per cent per annum, the property would be valued at $784,359 n This means the couple would have realised $330,938 of equity during this period. By using LMI, not only have the couple owned their own home for the past eight years, they are better off by approx. $180,199 than if they had waited and continued to save. APART FROM THE FINANCIAL BENEFITS, THERE ARE OTHER FACTORS THAT SHOULD BE CONSIDERED AS PART OF YOUR DECISION MAKING PROCESS 46 Pictures:iStockbyGettyImages.
Its My Home 2018 May