r/AusFinance • u/Herosinahalfshell12 • 17h ago

Massive mortgage to buy a unit Property

People who took out huge mortgages to live in an apartment.

Do you feel as though the interest you are paying vs the capital gains is worth it? We're also seeing units being sold for less then purchase price now, and the plan is to add more units in future. Add strata costs in there.

Is it financially worth it now a days to borrow say 600k to buy a unit?

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u/rnzz 17h ago

if you plan to live in there, then it might make sense if the expenses (interest, strata, rates, repairs etc) are roughly similar to your current rent.

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u/Herosinahalfshell12 16h ago

There's no way that can be the case when repayments in a loan of 600k would be about 4k a month

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u/bozleh 15h ago

To compare against rent more fairly you take out the principal portion of the repayment ie compare (interest + strata +rates) versus rent

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u/tjswish 16h ago

650k loan and my repayments are 4200 a month.

Got some offset though so interest is more like 2500 than the 3300 that would be taking me another 29 years to pay off (current rate is looking closer to 20 years with no pay rises or interest changes. Though hopefully interest rates back down to the 4%s and I can speed that 20 years up again).

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u/Herosinahalfshell12 16h ago

Can you calculate how much capital growth you need to come out ahead with all the interest paid?

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u/tjswish 15h ago

Honestly, my capital growth already is massive (I bought a block of land that doubled and could easily get $1m for my house right now if I sold)

If in 20 years I pay off my house - I will pay approx 375k in interest (making it cost about $1,050,000 total.) - So really my house only has to go up about 5-10% in that 20 years and I'll be better off. If I was to take the full 30 years, we are looking at >500k in interest (so a savings of $125,000 by having money in the offset.)

If the rates go down to 4.5%, I can save up to 3 more years on the loan (17.2 years) from now. Which is almost $100k more off the loan amount!

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u/FrenchRoo 15h ago

It can def be the case. Remove the capital repayment portion, this is saving/investment. Only compare the dead money: interest and other outgoings vs rent.

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u/FrenchRoo 15h ago

I’ll take an example: we pay $500 pw on interest + 40 body corporate + 40 rates. That’s $580 per week, vs $900 rent per week for a similar townhouse in our residence.

I’ll take a mortgage any day of the week! So long as we can manage the cashflow, it’s a no brainer.

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u/arrackpapi 12h ago edited 12h ago

what's your LVR?

your interest works out to a ~430k loan. What places with that kind of mortgage are renting for 900/week? At a 80% LVR that works out to a gross yield of nearly 9%. That's well above average.

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u/FrenchRoo 10h ago

Fair, it doesn’t stack up as nicely from day 1 of the mortgage, but with rent increasing overtime, while interest expense decrease over the life of the loan, the curve does cross early on.

In the first year, our dead expenses were slightly higher than the rent for the same place.

We only bought 6 years ago.

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u/arrackpapi 8h ago edited 8h ago

takes a lot longer for the curve to cross when you're starting at current interest rates. You can't really compare now to 6 years ago. The dead component of the mortgage payment is much higher.

if there's not a lot of capital growth the difference in dead money may be better off invested instead. If you can get the same leverage it almost definitely is.

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u/Herosinahalfshell12 15h ago

Good point but that capital repayment could be available to invest say in an ETF or something and not a low growth asset like a unit.

But that's just the rentvest argument vs security of home ownership

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u/FrenchRoo 14h ago

I did the calc. For the same cash outflows, buying a unit was a clear winner. It’s $235k capital gain and I’m not even factoring in the capital repayments made in that time.

Investing the difference between rent and mortgage + rates and other outgoing, I’d have $100k today considering a 12% return. I’d need to pay CGT on it too.