Home Financing
One approach to supplementing your savings is by taking out a reverse mortgage. In this post, I’ve outlined the concept of a reverse mortgage and my thoughts on its appropriateness as a retirement financing option.
It’s a commonly held belief that wealthy people fund their extravagant lifestyles from their personal coffers. However, the reality couldn’t be further from that belief. The following post outlines how real estate keeps wealthy people wealthy. It also explains how average people can be successful with this strategy.
Home ownership is arguably the most expensive purchase for the average person. Coincidentally, it also presents the single-largest debt obligation. Borrowers need to demonstrate they have a solid credit history and financial position. More importantly, they must establish they can manage a loan that spans multiple decades. They may still not obtain a mortgage despite satisfying these requirements.
Housing is an essential product. Depending on who you ask, coffee is oftentimes grouped in the same category. Australian housing is not getting any cheaper. The median house price in Perth has risen to $500,000. That median house price was also $157,000 only 20 years earlier, which is a 318% increase!
The Australian property market has recorded incredible growth over the past decade. During 2011-2019, nearly 1.6 million new homes were built. In addition, the total housing construction value was $101.6 billion in 2019. While this growth has tremendous upside to Australia’s economy, there is a concern: how is this value insured and is there enough insurance to cover the industry?
A mortgage is a long-term commitment that carries some hefty penalties if breached. The typical mortgage terms are 15-year and 30-year, but it’s important to understand the implications of each loan term, in the context of your personal circumstances.
So if you ask ten average investors, why is real estate such an attractive investment opportunity? My guess would be that at least 9 out of 10 would say it’s because of the tax benefits. One of the most notable tax benefits is in the form of negative gearing. The following post serves as an introduction to negative gearing, summarising the key benefits along with some of the potential pitfalls.
The topic of home financing is a convoluted one. There is plenty of scope to cover, even for an introductory note. In my experience, the best approach is to compartmentalise this subject matter into a series of digestible posts.
Home ownership and leverage go hand-in-hand. Any first home buyer will find it practically impossible to finance a home purchase other than through debt (other ways include them being equity rich or know of a wealthy financial backer). By committing to a mortgage, you are effectively committing to two significant life decisions – owning a home and being a long-term borrower.
I wanted to start this post by stating that I am all for real estate ownership and investment. I’ve dedicated over half my working life and post-retirement to promoting the value of real estate. However, I must stress that I always sell the idea of real estate with one large caveat. Make sure you can afford owning or investing in real estate.