BUYING a house in Sydney or Melbourne, if you pay the median price and get a big mortgage, could end up costing a lot more than you think.
Research by comparison website finder.com.au shows that a homeowner with a mortgage of at least $489,300 will end up paying $1 million over the duration of a 30-year loan, using the average variable interest rate of about 5.5 per cent.
Any property priced above $611,625 will end up costing the borrower $1 million, if the mortgage represents 80 per cent of the property’s value.
And if the property is in Sydney, where the median house price is $825,000, borrowers could hit the $1 million mark for their pile of bricks and mortar by just year 11 of the loan.
But, if they buy in Melbourne, where the median house price is $633,000, they won’t hit the $1 million mark until year 24, given a 20 per cent deposit and an interest rate of 5.5 per cent.
The median house price is the midway point of all the houses sold.
“When borrowers look at how much they can afford to repay for a home loan, they might not look down the track to how much they end up spending,” finder.com.au’s money expert, Michelle Hutchison, said on Monday.
“The danger lies with spending a lot more than necessary.” Ms Hutchison said the value of a house would likely increase over the term of the 30-year loan — but that rise may not compensate for the amount a buyer ends up paying if they have a small deposit and haven’t shopped around for a good interest rate on their loan.
For example, an interest rate of 4.39 per cent — 1.11 percentage points below 5.5 per cent — would save $446 per month in repayments on a home loan of $660,000.
As you can see below, average house prices in the nation's capital cities are all in excess of $420,000. If you've been thinking about relocating to a regional location, the time might just be right, especially when you consider that the average house price forecast for 2015 in the Hunter Valley is $285,860, with a figure of $216,216 in the New England region, and $325, 118 for the NSW Northern Rivers region.
YOUR MILLION-DOLLAR HOUSE*
Total cost: $1.349 million
Total cost: $1.035 million
Total cost: $866,673
Total cost: $776,735
Total cost: $688,433
Michelle Hutchison is the money expert for finder.com.au, one of the biggest online comparison networks in Australia