PLANNING FOR THE FUTURE
- Written by Melanie Toye, May 3, 2013
Purchasing a mortgage is for some Australian's the biggest investment in their lifetime. Having a plan for the 25-30 year term is a good starting place. It's also beneficial to review and update that plan every year. See every year; we learn more about having a mortgage. After the sale has gone through, we have the confidence of the process of buying a home which now seems easy.
The other notion to consider when reviewing your mortgage/investment plan is your finances. For the first couple of years, you and your partner may both work full time. Then perhaps the wage drops to one due to the impending birth of your child or through a job cut. Rebalancing your finances and budgeting is required.
When budgeting for your mortgage, remember it's not just the mortgage repayments you will have to pay. Expenses such as higher interest rates will need to be accommodated. In 1982, interest rates reached a record high of 21%. Currently Australia is lucky to have lower interest rates, but budgeting for higher interest rates, will provide less stress if and when the time comes for an interest rise.
Now another major inclusion to add to your budget is maintenance on the house. Just because you bought a house does not mean it doesn't need some money to be spent on it immediately and down the track. Generally at least $1000 has to be shelled out as owners move into their home. It could be anything from new carpet due to major carpet stain to paying for a plumber to fix a blockage. Just remember if you buy your home brand new in ten years’ time all the appliances in your home generally have a life expectancy of ten years. So everything within weeks to months apart could break down at the same time. Leaving you to wonder how you can pay for it all at once. If you put aside a maintenance fund for the home in your budget, in ten years, you will have enough funds to pay for the upgrades. Just note that the age of the home when you buy it and how much you will need to put aside for the amount of years remaining till the appliances will need an upgrade.
Remember when buying a property for the first time it is hard to know what the expenses will be once you move in. That is why reviewing your budget on a regular basis against your current and future plans will help eliminate those financial stressful moments.
Also if you focus on adding additional funds to your mortgage at the beginning, although it's mainly paying interest, it can help reduce your loan term over time and it will help when you may need to ask the bank for some extra time to recoup funds to pay for the mortgage for a short period while between jobs etc.
The benefits for creating a financial plan is that as you grow older and circumstances change (i.e. you have a family, retire, venture on an overseas holiday etc.) you will be able to add in these extras such as education payments, annual holidays etc. as the future moves in closer. Rather than saying in ten years’ time I will be on the same wage and in the same circumstances, as in ten years, everything could be different.
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