Home Loan Horror

Reporter: Andrea Burns

A booming housing market in a financially booming state. On paper, may West Australians have made a motza in the past year, on property. But what goes up, must come down - everything that is, unless it's your mortgage payment. No matter your age, or stage in life, experts say you can take the horror out of your home loan

First, meet our twenty somethings, Sarah Anderson and fiancé Brendon Stone. They paid three hundred-and-sixty-five -thousand dollars for their Nollamara house last October. They pay two thousand five hundred dollars a month in repayments. It's a stretch. Actually, it's a horror. Sarah says "one pay goes on the mortgage, and one goes for other bills" How closely do you budget Brendan? "To the dollar"

Sarah and Brendan have just four hours a day together with baby Carter. At all other times they're working to make ends meet. Brendan works days as a baker, Sarah works nights in manufacturing, grabbing sleep when she can, when the baby naps. What she saves on childcare goes on the mortgage. "We've just had to tighten things a bit, less um, luxuries, designer label clothes, shoes and things. Really looking after our possessions a bit more than we did before. Less going out for dinner and lunches, down to once a week or once a fortnight" Still, according to REIWA figures, Sarah and Brendan's place has actually gone down in value since they bought just five months ago. "Doesn't really bother us because we're not looking at it as a lets sell it now, we're looking at it as a 20yr at least investment. this is our family home, so, I mean, it doesn't really, hasn't really affected us in that respect"

"I don't think anybody wants to get a mortgage, always said a mortgage is a means to an end" Bankwest's John Rolfe says Sarah and Brendan have done the right thing in getting a foot into the market. For other 20-somethings, these might be other options.

  • Buy with a partner or friend - just as two heads are often better than one, so are two incomes. And you don't have to be married to share.
  • Make sure you have a deposit. Don't borrow the deposit.
  • Get a loan combining principal and interest?
  • The term of the loan affects how much you pay each month, extending the term reduces the monthly payments.
  • When you can, do make extra payments.

That bit of extra cash can make a HUGE different down the track. Here are some rough calculations: on a three hundred thousand dollar loan over thirty years, paying an extra 10 dollars a week means you'll finish the loan two years early, and save yourself more than thirty nine thousand dollars in interest. 20 dollars a week more, you'll cut the loan nearly four years, and save almost seventy thousand dollars. An EXTRA fifty dollars a week, you'll own the property nearly eight years and save a massive one hundred and thirty six thousand eight hundred dollars in interest.

Glenn's our example in the thirties. Fear of missing the property boat is forcing him to pay almost two thirds of his salary for the mortgage. Glenn says he did a lot of research to see which bank offered the best deal. And, he believes he's bought well - choosing a two bedroom over a cheaper one bedroom - even if paying for it is tough. "I could have gone into a smaller place at that time and maybe have got a one bedroom unit but I was just a bit concerned that I may not have the resources to get into a bigger place in the future"

John Rolfe says "definitely do your research, always have a look, get onto the internet, go to the infochoice website, go to the cannex website, have a look and see what is available, look at the fees and charges that apply on the loans, all of the details are available there" For those thirty-plus... John Rolfe suggests:

  • Sticking to a budget is even more important.
  • If you've been an owner for a while, and built up equity, look to use that equity to invest or do renovations.
  • Also, with that equity, see if you can to reduce the term of the loan. You'll be mortgage free, faster.

Andrew and Julie Head are parents in their forties, paying about a quarter of their income on the home loan. They've had enough. Their elegant Winthrop home is now for sale. They've put an offer an another place, same size living area, but much smaller garden. They're trading down because Andrew says he's tired of working just for mortgage. He plans to put any profits from the sale of the home into other investments - and enjoying life.

John Rolfe's tips for the over 40's...

  • Consider downsizing - if you don't need all that extra space, don't pay for it.
  • Think about boosting super or using equity in your home to diversify your investments.

"One loan may stand out for the individual based on their own circumstances" Financial analyst Michael Moran of research group, Cannex has evaluated mortgages on offer. He believes first home buyers in their 20's should look at products from Home path... Virgin money, Resi, RAMS and Macquarie Bank.

30's - if, like Glenn, you're looking for interest only, Michael says Collins Home Loans, Virgin money; RAMS and Macquarie Bank all have suitable loans.

And for the over 40's looking for flexibility, BankWest, St George, Arab Bank Australia, ANZ Bank and Gateway Credit Union are recommended. Michael Moran says "really you've got to shop around, don't be afraid to ask questions, do your research, and do your homework"

Reducing the horror of a home loan

For 20-somethings

1. Share the burden

2. Pay a deposit

3. Principal + Interest loan

4. Term of the loan

5.Make extra payments

For 30-somethings

1. Set a budget and stick to it

2. Use built up equity to make money or improve value.

3. Investigate reducing term of loan

For 40-somethings

1. Consider down sizing

2. Boost Superannuation

3.Use home equity to diversify investments.

Source - BankWest

WHICH LOAN?

Loans to consider...

20'S - First Home Buyers

Home Path - Standard Variable Home Loan

Virgin Money - Standard Variable

RESI Mortgage Corp - Complete Home Loan

RAMS - Basic Interest Variable

Macquarie Bank - Mortgage Saver

Source - CANNEX

30'S - Interest only loans

Collins Home Loans - Multi Option Home Loan

Virgin Money - Standard Variable

RAMS - Basic Interest Variable

Macquarie Bank - Mortgage Saver

Source - Cannex

40's

Bank West - Lite Home Loan

St George Bank - Basic Home Loan

Arab Bank Australia - Basic Home Loan

ANZ Bank - Money Saver Loan

Gateway Credit Union - Standard Variable

Source - Cannex

This information is intended only as a guide- for personal information, consult a financial expert