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Start your own home, don’t buy too soon!
By arlene | September 28, 2009
Right – we are agreed that it will pay you to buy your own home, and that it is worth saving up from a young age to pay the deposit. However – and this is one of the biggest “howevers” here and one of the most important pieces of advice for staying out of financial trouble! – don’t be tempted to buy your own home before you can truly afford it.
The danger lies in finding yourself unable to meet the monthly repayments on your loan. The bank or building society which granted you the mortgage bond (loan) did so on the condition that the property which you are buying be pledged as “security”. This means that if you are unable to keep up your repayments, the bank or building society will most reluctantly be forced to seize the property back from you and sell it to defray its costs.
They will sell the property at the best possible price to cover the amount of the outstanding loan, and if there is anything left after this sale, it will be passed on to you. However, if the best price available does not cover the loan, you will still owe the amount outstanding.
What this all means is that, at best, you will come out of the affair with very little of the money you have put in — and at worst, with further debt owing.
Financially, you will be “broken” — and in spirit too, you will be very low, what with the trauma of being expelled, with your children and all, out of your home, and having to start from scratch again.
You will ask: “But surely, if I am told in advance what the monthly repayments are, can’t I calculate what I can afford?”
The answer is: The interest rate which you have to pay on your home loan fluctuates up and down, in accordance with the ebb and flow of the economy, and your monthly repayment fluctuates with it.
If you buy your home at a time when the loan interest rates are “low” by present standards (around 12,5% p.a.), you could well find yourself, within a very short period, faced with an interest rate of 21% — and repayments some 70% higher than when you started out.
The thing to do, therefore, when the interest rates are low, is to ask yourself if you could afford repayments 70% higher than those quoted to you. If you cannot afford that sort of monthly outlay, you cannot afford the house.
If you are at the bottom end of the market, which is usually the case with young, first-time buyers, you will have to accept that you must wait a while longer. If, on the other hand, you are looking at something a little more expensive which you THINK you deserve and can afford, you will simply have to accept that you must make do with a less splendid place and “house trade” your way up over a few years. Many people have gone bankrupt through buying a mansion when they could really only afford a modest suburban home. Greed is a sin which carries its own built-in penalty!
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Topics: Market, Property, Sale | 6 Comments »
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September 28th, 2009 at 9:23 am
Back to News Centre Send this article to a friend taking the guesswork out of buying your home For most of us, buying our home is the biggest investment we vet ever made yet too many of us go into the process uninformed, without a real sense of the risks (and hidden costs) involved. … Home Buying Process
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October 18th, 2009 at 10:35 am
House foreclosure is a process where real estate is taken from buyers by someone with liens against the said property. This is initiated by most of the moneylenders in case no mortgage payments were made by the buyers for long periods.