TheDaddy

Ok, this has well and truley confused me...

I went on a loan calculater, on a finance website, heres what got entered and the results:-

Estimated Price - $400,000
Deposit - $80, 000
Interest Rate - 7.37%
Term (Yrs) - 25

Loan Ammount - $320, 000
Payments (pcm)- $2,338


That, to my calculations is - $2,338 x 12 months = $28,056
$28.056 x 25 = $701, 300!?!?!?!

What the hell am i not seeing here? lol help please, bit confused and slightly scared!

To my reckoning, that is NOT 7.37%. Maybe 160%, yeh lol. Someone sort this for me please and put it in lamens terms, much-o appreciated, thanks.

stuckinblighty

Thats motgages i'm afraid.Because the loan term is so long the total money paid back is astronomical.Its just the same in blighty

Lee

Stu Ward

The Interest is not 7.3% over the term of the mortgage.
If that were the case then people would be able to loan Millions of dollars.

The rate is APR (or AER), meaning you pay the interest rate whatever it is every year.

so if you lent $100K you would pay $7.3K in interest over the year, anything over that would be taken off the loan amount.
If you paid $7.3K (an interest only loan) then you would still owe $100K !

When you apply for a mortgage there will be a part at the end saying that for every $ you lend you will pay back something like $2.5 at todays interest rate


Stu

TheDaddy

Wow, that is fking criminal!

What you reckon the chances of a childrens nurse and a plasterer being able to afford something like that? with about $10,000 - $20,000 deposit?

Say, could we afford the $700 a week mortgage, then food and bills ontop of that?

Im not sure on wages, ammount of work etc, so i wouldnt know.


Even still, i figured it would be AER, but... work it out,

$2,338 x 12 = $28, 056
7.37% ontop is $30,123
$30,123 x 25 Years = $753,075 haha. Thats without deducting the fall in interest from oweing less each year you pay some off the mortgage? Am i being dumb here, its really ****ed up


What would interest only be roughly on $390,000? if anyone has a rough guess, cheers.


Edit: Obviously each year the payments go downb ecause you owe less, but would you really be paying only 7.37%? ah i dno

Stu Ward

Interest only means youonly pay the interest off.

So after the term of the mortgage, you still owe all of the money that you have borrowed.

To pay this off youtake out an Insurance policy (Endowment)
This is invested in growth (hopefully) areas but this can (as has happened in the UK) end up lower than either the amount invested in it, or have a mortgage shortfall.
Meaning that when your 25 years is complete your endowment matures but does not cover the loan, therefore you have to foot the shortfall.

Monthly repayments are similar in both Repayment and Interest only mortgages with an Endowment.

The benefit of an endowment is that if the market is good then it matures with a profit, but there is a risk to be considered

This is the same as in the UK.

I take it you are a first time buyer ?

Stu

@boy

After the latest interest rate hike this week, the best variable discount rate you will get out there will be approx 8.5% (or a fixed rate of about 8.2%)

Those mortgage rate calculators always have a much lower figure plugged into them by default.

The monthly interest charge on a 350k balance at that rate is approx 2,500 per month.

NikiL

Blimey, thats steep.

Seems slightly reminiscent of the early 90's in the UK at this rate

gerry

i think i will be deffo renting now as we would of been in same boat ie 400k morgage with around 80k then morgage the rest...

plus with morage dont you have to pay coucil tax were as when you rent you dont.....

Vim Fuego

Vim's obligatory advice on home loans - Pay it fortnightly if you can, most loans will default to monthly (in the banks favour, surprise surprise) ... stick it in a calculator and see the difference.

themerlin

Or better still weekly.
Even better get an off set account.

Oh and best of all win the lotto, will help no end

EvannTel

In 20 years I have never heard of endowments in Aus. They may exist of course. Repayment is the norm. Interest only is becoming more popular. The latest trend is to pay mortgage minimums and put "difference" into Super. This is a compicated arrangement and sensitive to individuals needs and tax rates etc. I've just chnaged to this method and after 15 years I'll be $150K better off - unless the rules change! This works for me and I stress get independant advise on YOUR situation.

Stu Ward

I guess the Super is a similar way to invest as an endowment, just a different name.

It basically invests the moeny you pay in into certain areas
Stocks and shares
Interest savings
etc etc

TheDaddy

Ill ask again incase noone read it...

What you reckon the chances of a childrens nurse and a plasterer being able to afford something like that? with about $10,000 - $20,000 deposit? :P


Also, i been looking at property in Melbourne>Perth and well, it seems you get alot more for your money in Melbourne? i love the new style, modern houses, look brilliant and great layouts at good prices. Is there any estateagent websites for Perth with new homes? cheers

stuckinblighty

Dont forget with the new homes (off plan)you have to purchase the land aswell as the house.So a property that is advertised at ,say,$185,000,will cost you roughly double by the time you've factored in the land and other costs...just thought i'd let you know if you was'nt aware It took us a while to work that one out

Lee

TheDaddy

ouch lol. But a modest new build for say, $300,000 would surely have the land included? hmmm thanks for the advice mate.