In Australia, buying a home is considered the “Great Australian Dream”. After years of hard work, you have finally arrived! You have the opportunity to own a piece of land in your own country. Home ownership is a major milestone. It does not only confirm your success, but you can officially provide shelter for your own family,
However, buying a home is going to be your largest purchase. Once you review your cash flow, the idea of achieving the “Great Australian Dream” becomes more daunting. It will severely impact on your earnings and potentially affect your savings.
And this is where the banks come in with their home lending schemes. They paint a rosy picture on why you should buy the home of your dreams right now. The banks will make home ownership look easier than it seems.
Here are some of the tactics and gimmicks that the bank will throw at you:
- Interest only payment for the first 2 years of the loan
- Lowest interest rates in the market – show us any bank that is lower and we will beat it
- Fast approval process – get approved within 24 to 48 hours
- Option for fixed interest payment for the first year of the loan
- Quick approval for a second mortgage if needed for repairs and improvements
- Longer term payments – up to 25 years – are available
Pressured by the motivation to own a home, many people succumb to these pressure tactics from the banks.
Everything is great until the principal payment is factored in during the second year of the loan. Then you will start to feel the pressure on your cash flow.
A 2018 report by Digital Analytics revealed that in Australia, up to 1 million home loans were in danger of being in default. The risks for these home owners will increase exponentially if the Big 4 Australian banks – ANZ, Westpac, CBA, and the NAB – decide to increase its standard variable rates by as little as 0.15 percentage points.
Getting a loan may seem like a quick fix solution to buying your dream home. However, if you can’t pay your mortgage on time, your dream home can quickly become a house of horrors.
Here are a few of the likely consequences:
- You’ll Scrimp on Improvements
When building or acquiring a home, the details are usually the last ones to be taken care of. These details are the finishing touches; fixtures and improvements that will give your home the look and feel you want. All of these will take a back seat because you won’t have enough money to follow through with the improvements.
- No to Home Insurance
With a constricted cash flow, you’ll have to set aside enough money to cover your monthly needs and key expenses. Chances are, you will forego having home insurance. This is a very risky decision because it leaves your home vulnerable to uncertainties.
- Maintenance and Repairs Will Be Delayed
That leak which keeps you up at night? You may have to get used to it. Buying a home is one thing. Maintaining it is another. For a home to improve its value, it must be regularly maintained. However, if you don’t have the money to pay for its maintenance and repairs, your home will show the effects of wear and tear.
If you can’t cover the loan, you’ll be in default. The bank will only give you so much time to settle the outstanding balance. In time, the bank will swoop in like a vulture and foreclose your property.
Of course, you might be given the opportunity to sell your home and use the proceeds to cover the balance of the loan.
However, if you didn’t do your research properly, your property may not have appreciated enough in value. If this happens, you might have enough money to settle the loan but not enough to buy another one.
Instead of having your dream house, you might just end up in the poor house.