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Outright home ownership harder than ever

Outright home ownership harder than ever

Jack Han investigates hot to tackle the tough times ahead for home ownership.

November 10, 2009

Millions share the Australian dream of owning a home. However, a lifetime of mortgage repayments usually stands between you and the full ownership of your home. This dream might be further away than ever, with the proportion of Australians who own their homes outright dropping, according to recent findings by the Australian Bureau of Statistics (ABS).

The report found that one-third of all homes were owned outright by their occupants in 2007-08, down from 42 percent in 1994-95. The proportion of homes owned with a mortgage has increased over this time, from 30 percent to 35 percent, while the renters made up the rest, increasing from 26 percent in 1994-95 to 30 percent in 2007-08. With Australian borrowers taking on more debt each year, we will likely see the trend of rising mortgages and rents continue.

A shocking finding was that the amount owing on home loans has almost doubled over the 13 years to 2008 – to a median value of $150,000 per household. However, this can be explained by the doubling of home values, with the median home price now at $400,000.

Mortgagees have also been found to be spending an average of $384 per week on home loan repayments in 2007-08, making up 18 percent of their gross household income. Compared to today, average repayments is about $1,690 per month for the average $27,000 loan and the average variable rate of 5.7 percent p.a.

So how can you gear up to battle the fierce housing market ahead? Firstly, you need to make sure that you’re paying the lowest interest rates available.

For example, Eric wants to buy a $400,000 house, and needs to borrow 90 percent of the price ($360,000). If he pays 6 percent in interest over 25 years, Eric would be making repayments of $2,319 per month.

However, if he shopped around for today’s lowest rates of around 5.2 percent, Eric could potentially save $51,600 over the life of the loan.

Alternatively, Eric could bring himself closer to owning his home outright by increasing his monthly repayments. If Eric added $200 a month to his minimum repayments with a 5.2 percent p.a. variable home loan rate this would cut over $50,000 off the loan and knock about four years off the 25-year term.

Outright home ownership looks further than it is. Clever home owners are cutting decades from their debt journey. Start comparing online and make a strict budget for yourself, and you could be waking up from the outright home ownership dream to make it a reality.

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