Are you better off saving a big deposit or diving right into a mortgage?

[LionsandBears]

The decision is completely dependent on whether you want a home or an investment property. A home is an emotional decision. An investment property is a business decision - you need to look at tax, structuring etc to make sure you maximise your return.

[misty]

IMHO - Don't bother trying to 'time the market'. And DON"T listen to anything 'Koche' has to say on the issue of property!

I am making an assumption you are looking at buying purely as an owner occupier, and have no interest in property as an investment. I would suggest that while you are in a position to save to do so. A bigger deposit is going to help. LMI is a large expense, there is nothing wrong with paying this expense if you have too, or if it makes sense financially (ie, from an investment perspective), but if you can avoid it, you will literally be saving yourself Thousands of $$$$$. Not to mention the hassle of dealing with the LMI companies, and living in fear until complete approval by them is granted that they will insure you, whilst jumping through endless hoops and rediculous requests for paperwork they should alrady have (can you tell, I've deal with them on a couple of occaisions?? ).

A 20% deposit + approx another 5% for purchasing costs, is the best position to be in. It gives you alot more flexibility in terms of choosing loan products and intitutions, as well as with negotiating discounts or getting a property that comes slightly under value to what you might have predicted or hoped. It also means that you can either get a slightly more expensive place then otherwise (ie, max out your servicibility) or have less debt to the bank and thus lesser repayments.

Of course if you happen across something fabulous while you are still saving that larger deposit, you can always change your mind.

[misty]

Sorry disregard my last post, I just went back and reread your first one and realised that you are actually looking for an investment!!!

In which case my answer changes dramatically and I would say it depends on the actual numbers of the property you are looking to buy and your taxable income here in Australia.

Also IMHO disregard all this talk about bubbles etc here in aust. Some places are stagnating, some have had 'slight' decreases, but as a whole most places seem to be going though the regular cycles that property goes through (ie, rapid growth followed by stagnatation or slight decrease, followed by further growth). Property is a LONG term investment, and it truely isn't timing the market that is as important as time IN the market.

[Phteven]

I would say the big deposit is better. You will save a fortune on interest over the years.

[feeb]

I would say bigger deposit and buy out west!!!!!!!!!!!!!! Willy and newport are gorgeous!!

Bendigo, Ballarat, Gisbourne, Sunbury etc could be worth a look as your DH could work and you could easily comutte.

[Junglemum]

Thanks for all your input. I think the money is burning a hole in DH's pocket and he wants to get it invested. And if i don't invest it he'll keep buying more cows! We have a whole freaking herd building up, which is fantastic as it is our school fee fund for the kids, but i'd like to invest in something else as well.
Given there is no rush i spoke to him about perhaps putting the money into a high interest account while we save at least 20% and then have a good lump sum to buy something without paying the mortgage insurance. Maybe we should see a financial advisor? (love a recommendation Tash.....)

Ginger- Oh you know me all too well. What i have to curb my country road habit??? We talked about it and are going to 'pretend' we have a mortgage and transfer that money each month from here to an account in Aus. That way it can't really be spent. Moving here has been amazing for our savings, i couldn't spend money if i tried. It has made me realise how little we actually need.

Feeb- Dh manages about 20,000 head of cattle, a big cropping operation, a feedlot and abattoirs with the help of 100+ staff. It is a huge business and there is nothing like that really anywhere in Vic. So not sure what the next step for him would be. If we did live in Vic, he could possibly move into more of a consulting role which would mean we wouldn't have to necessarily be rural. But he does get the shakes when we are close to high rise buildings. You can take the boy out of the country and all that. I've done my time in Ballan, and i will happily never do it again! I used to commute to Geelong an hour each way every day. It's do-able but i'd rather not!

[feeb]

Thanks for all your input. I think the money is burning a hole in DH's pocket and he wants to get it invested. And if i don't invest it he'll keep buying more cows! We have a whole freaking herd building up, which is fantastic as it is our school fee fund for the kids, but i'd like to invest in something else as well.
Given there is no rush i spoke to him about perhaps putting the money into a high interest account while we save at least 20% and then have a good lump sum to buy something without paying the mortgage insurance. Maybe we should see a financial advisor? (love a recommendation Tash.....)

Ginger- Oh you know me all too well. What i have to curb my country road habit??? We talked about it and are going to 'pretend' we have a mortgage and transfer that money each month from here to an account in Aus. That way it can't really be spent. Moving here has been amazing for our savings, i couldn't spend money if i tried. It has made me realise how little we actually need.

Feeb- Dh manages about 20,000 head of cattle, a big cropping operation, a feedlot and abattoirs with the help of 100+ staff. It is a huge business and there is nothing like that really anywhere in Vic. So not sure what the next step for him would be. If we did live in Vic, he could possibly move into more of a consulting role which would mean we wouldn't have to necessarily be rural. But he does get the shakes when we are close to high rise buildings. You can take the boy out of the country and all that. I've done my time in Ballan, and i will happily never do it again! I used to commute to Geelong an hour each way every day. It's do-able but i'd rather not!

Oh wow thats a massive amount of cattle!!! Nope no where you can do that. Good luck on your decision!!

[wysiwyg]

As an investment I personally would buy now and go for a Rocket Repay or similar (we have one with Westpac) where you can pay in as much as you like and redraw as much as you like as well (is o***et too so anything in the current account also o***ets the interest). The market may have stalled a little for a bit, but if you have a 10% deposit then mortgage insurance is only about 1% so in my opinion you are likely to recoup that amount quicker than takes savings to get to 20%. Being o***hore your situation might be different but you pay tax on savings in a high interest account, but by using that money to pay off a mortgage then you are making an investment but not paying any extra tax.

E.g. Everytime I think about putting any money into a high interest account, I do the sums and is actually far better for it to be working for us against my mortgage

If you can get 6.5% in a high interest account for example - and have 10,000 dollars then you would have after a year 10650, so 650 in interest less tax. If you have a mortgage say of 300000 at an interest rate of 7% having that 10000 against your mortgage for a year will save you 700 in interest and there is no tax to pay (and if you have something like the rocket repay can access the money whenever). Of course this depends on the interest rates you can get on the high interest account and the mortgage but it seems very rare that you can find a product which will actually earn you more than you would save on a mortgage.


I would speak to a financial advisor because I think because you are o***hore there might be some things that are much better to do than others (may also affect the type of mortgages you can get your hands on) - and sounds like you have a great opportunity to get ahead. E.g. you can make tax savings if you buy a property and rent it out and then later want to move into it - by doing all the work on it before you become the owner - occupier.

[Junglemum]

It cracks me up when the letters F F S get censored?! Why that one when it's ok to say WTF? Why don't people just imagine it to be 'for fruits sake'? Ok... a little sidetracked!

Thanks for your thoughts Wys, you make some interesting points. I think a financial advisor is a good idea. We pay tax here in PNG at about 40%, i know they asses it in Aus and if they believe we need to pay more then we have to, but if they deem that we've been taxed sufficiently then we don't. But best i get a more definitive answer on that one!

I also need to find an accountant who deals with this sort of thing to do out Tax. hmmmm.

[Laranna]

Also something to think about is that the interest component on your mortgage repayments are likely to be tax deductible (along with various other expenses associated with owning an investment property). An accountant will definitely be able to do these sums for you.

IMO, I'd buy now. The market may be slowing but it will pick up again, there's no point in trying to time it, just jump on and ride it out. Everything will balance out over the long term.

[LionsandBears]

JM - tried sending you a PM, but your inbox is full

[misty]

Sorry OTT a bit, but...
If it is an investment, DO NOT GO REDRAW. Use an off-set account instead - (a real off-set account, make sure you check it really is an 'off-set' and not just a redraw under another name). The ATO treats them both very differently, even though they will both minimise the amount of interest you are paying. If you use REDRAW and take money off the loan for purposes other then investment, then this proportion of the loan (ie, 2.36%) will no longer be deductible for the entire life of the loan. If you use and off-set, it will ALL remain deductible, no matter what you are drawing the funds out to pay (personal or investment).

[misty]

I don't know what is rude about "off set".....

[Amity]

it's the F F S in o***et... I'll put a hyphen in it for you if you like...