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Mybudget
First home buyers get into further debt
By Tammy Barton


PaintingSo you’ve just bought your first home. Congratulations, it’s a huge milestone. Now what comes next? The Australian newspaper has reported that a survey of first home buyers shows that nearly one in five have racked up extra debt on top of their mortgage in the last two years—some as much as $100,000.

The article says that almost half bought a car, one-quarter spent money on renovations and 20 percent built up extra credit card debt. Sadly, eight percent of the 803 people surveyed said they were considering selling their home due to their inability to afford repayments.

Buying a home is the largest purchase most people will ever make and for many it will represent a large proportion of their eventual retirement nest egg. It’s important, therefore, that you approach home ownership with eyes wide open.

Aside from the obvious costs of buying a home (the purchase price of the dwelling, legal and bank fees, mortgage insurance if applicable, moving costs, and government stamp duty), there are flow-on costs to consider. Most people want to do some sort of home improvements when they move in. You may also want new furniture.

If your mortgage comes with a line of credit (a revolving loan secured against your property) or a new credit card, you may be tempted to buy a couple of big ticket items—a new fridge, washing machine or car. Or perhaps the excitement of having a home will encourage you to splurge on new clothes or a holiday. You may also find yourself inundated with new credit offers. Lending institutions often target borrowers who have mortgages and you’ll quickly find yourself on multiple mailing lists.

Why is it important to resist these urges? Well, consider this scenario: $10,000 added to an existing home loan of $250,000 at 7.5% interest per annum over 25 years = $22,169 total repayment amount. That’s more than twice the original debt. Think about how those sorts of costs add up and eat into your savings.

You've already proved you can saved for a house deposit, why not keep saving for the things you want? If that means you can’t afford big home renovations for a few years, you can start by doing some cheap home improvements that your budget allows—paint a room, make some new curtains, cover an old couch in a throw rug.

With the looming threat of interest rate rises, it’s also very important that you can afford to pay more than the minimum repayment required on your mortgage. Consistently paying even small amounts above and beyond your minimum repayment will save you thousands of dollars over the term of your home loan.

Begin talking to one of our consultants about how a mortgage would work into your budget. If you already have a mortgage, talk to us so we can help you devise a long-term budget that achieves your goals while minimising your debt exposure. We’re always here to help.

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