Buying a house has long been considered an Australian ideal, but for us young Aussies at times it may feel out of reach… We have run the numbers so you can decide for yourself!
Assuming that you will purchase a house using a mortgage, there will be two ways you will pay for it: upfront and through ongoing payments.
1.The house deposit
Banks are unlikely to lend you the money to purchase the entirety of a house, therefore, it will be necessary to pay some of the purchase price upfront. This cost is known as the deposit.
The standard house deposit is 20% of the purchase price, however, this can be reduced in some circumstances by taking out LMI (lenders mortgage insurance).
Stamp duty is a tax on property purchases, it varies depending on the sale value but will usually fall in the range of 1.4%-5.5% of the purchase price. You can use this nifty stamp duty calculator to work out how much you will need to pay.
We have grouped a range of incidental fees incurred during the purchase process into this bucket.
Some examples include loan application, title transfer, legal, conveyance & building inspection fees.
If you are taking out a mortgage, you will have to pay interest on that loan. These rates are simply the cost of borrowing and how the bank makes money on the mortgage.
If you use a variable loan, this cost will fluctuate depending on the interest rates offered by your bank.
Depending on how you structure the loan, this cost may reduce as the outstanding principal is reduced over time.
Principal repayments go towards paying off the outstanding loan itself, reducing the amount owed to the bank. They are usually fixed over the life of the loan so that each month a consistent amount is paid.
Principal repayments aren’t really an expense because you are just changing the asset class of your wealth. Instead of holding the money in cash, it is now held as equity in your new property!
3.Home ownership expenses
There are also some pesky expenses that arise as a homeowner. The main ones are council rates (taxes paid to the local council to cover things like garbage collection), home insurance and house maintenance.
Despite the host of fees and expenses, once that loan is paid off, you will be the proud owner of your very own home!