If you plan to buy a house and land for sale in Melbourne’s northern suburbs, the amount you’re willing to borrow for a mortgage will partly determine your options.
As of November 2018, the average size of a residential mortgage in the city cost $400,400. Australian Bureau of Statistics’ (ABS) Housing Finance data showed Victoria’s capital had the third-most-expensive mortgage among the eight capital cities in Australia. The average size likely changed after relaxed lending policies that allowed some people to borrow at least $50,000 more on their mortgages.
How Do You Calculate Monthly Repayments?
First-time borrowers should ideally follow the 28 percent rule on mortgage repayments, which means that your money reserved for loan obligations shouldn’t exceed 28 percent of your monthly income. However, this isn’t realistic when you have other bills to pay like student loans and credit card debt. Your monthly repayments will also depend on your chosen term. For instance, you might pay around $1,420 every month for a 30-year mortgage with a principal amount of $300,000 and a 3.92 percent interest rate.
While you’re not obligated to follow the 28 percent rule, it’s best if you follow it anyway. Those who spend more on their loan repayments are at risk of experiencing mortgage stress. This occurs when you spend over 30 percent of your income on mortgage payments alone. It might not be a problem if you took a fixed-rate loan, but those who opted for a variable mortgage might pay a bigger amount in case of higher interest rates.
Avoiding Mortgage Stress
One way to reduce your risk of defaulting on a mortgage involves a shorter term. The chances of falling sick or losing your job are greater within the next 30 years than within 10 years. A short term, however, requires a big monthly repayment. Whether or not you choose a long term, more people are falling behind on their payments for more than three months.
The Reserve Bank of Australia said that the 90-day trend, which refers to the length of time for past-due payments, happens for several reasons. Unexpected sickness, joblessness and simply borrowing more than you can afford are some of the usual factors for mortgage stress.
First-time buyers can prevent themselves from spiraling into debt by saving a bigger down payment. According to ABS Housing Finance data, the average home loan amount in Melbourne cost $351,500 in November 2018. A bigger down payment not only reduces your interest payments, but it also increases your chances of loan approval as it somehow indicates your seriousness on becoming a homeowner.
Overall, you need to think carefully when planning to get a mortgage, as many homeowners currently struggle to repay their debts. Look for a house where you see yourself staying for several years. You might save money by only purchasing a lot and build your house on the empty land. Properties in Melbourne’s northern suburbs are a good choice since it’s nearly impossible to find vacant lots in the city center.