1. Background Information
- Property to Purchase: $900,000 Apartment (New South Wales)
- Income Details:
- Restaurant Business Income: Recent annual profit of $90,000
- Husband’s Income: $50,000 (wage)
- Wife’s Income: $40,000 (wage)
- Family Composition: Couple with two minor children
- Savings: $70,000 (to be used as a deposit)
2. Purchase Plan
- Purchase Price: $900,000
- Loan-to-Value Ratio (LVR): 95%
- Loan Amount: $855,000
- Deposit (5%): $45,000
- Stamp Duty:
- Typically $35,029 for a $900,000 property in NSW
- With First Home Buyer benefits: $15,161.50 saved → Final Stamp Duty: $19,867.50
- LMI Waiver: Eligible for First Home Buyer Deposit Scheme, waiving Lenders Mortgage Insurance (LMI).
3. Expected Benefits
- Stamp Duty Savings:
- Reduced Stamp Duty from $35,029 to $19,867.50 through First Home Buyer benefits.
- Total savings: $15,161.50.
- Government Scheme Benefits:
- Purchase enabled with a 5% deposit through the First Home Buyer Deposit Scheme.
- LMI waived, saving thousands of dollars in additional costs.
- Changes in Housing Costs:
- Current living situation: Weekly rent of $950 (Epping area).
- After purchase: Weekly interest expense of $1,010.
- Simulation after 5 years:
- Principal reduction: Loan balance decreases to $795,853.
- Weekly interest expense reduces to $940.
- In contrast, rent is expected to increase over 5 years, making homeownership more advantageous in the long term.
4. Long-Term Advantages
- Stabilized Housing Costs:
- Eliminates the risk of rising rental costs.
- Potential for capital gains through property value appreciation.
- Utilizing First Home Buyer Benefits:
- Reduced upfront costs to ease financial stress.
- Support from government schemes to facilitate the purchase.
- Opportunity for Asset Accumulation:
- Net equity increases as principal repayments progress.
- Leverage the property asset as a foundation for long-term financial stability.
5. Considerations
- Increased Interest Costs:
- Weekly housing costs increase by approximately $60 (Rent: $950 → Loan interest: $1,010).
- Additional financial planning needed to account for potential interest rate hikes.
- Cash Flow Management:
- Emergency funds must be prepared in addition to loan repayments.
- Address the variability of restaurant business income.
Final Conclusion
This scenario outlines a strategy for a First Home Buyer to maximize government benefits and purchase a property.
It enables long-term asset accumulation and housing cost stability while mitigating the risks of rising rents.
By transitioning rental payments to loan repayments, the couple can take advantage of ownership benefits and secure financial stability.
Furthermore, after 5 years, reduced loan balances and interest expenses will provide greater financial flexibility.