Are your children renting? Want to help your children buy their own home?
The thought of buying a home can be both exciting and daunting.
The deposit amount and ongoing interest charges of a loan can really add up, making home ownership for your children seem out-of-reach; especially with today’s ever increasing house prices.
It’s no wonder many potential younger home buyers are asking whether they’d be better off renting. Many of them ask "isn’t renting just throwing money away?" In one regard we say yes absolutely, rent money can be dead money. When you just rent then you are not investing your rent payments and it can never grow. You are simply paying off someone else’s home loan by providing them with rental income.
Make your children’s dream come true sooner
The good news: you can help make your children’s dreams come true.
At La Trobe Financial we have designed our P2CTM product to specifically address the affordability gap between current house prices and median income multiples – now at a staggering 5 times income.
The P2CTM product seeks to protect parents’ wealth in cases when they want to assist their children, and at the same time enable children to enter the housing market without the need for asking mum and dad to put their wealth at risk through bank guarantees, or additional mortgages against the parent's primary residence or other property.
How can I work out if it’s better to rent or buy
New and available immediately on our website is our Rent V Buy Calculator a unique special feature of the P2C website and loan product. The P2CTM calculator Rent V Buy illustrates the potential benefit of either renting or buying a property at different points in the economic cycle. You can change the key market assumptions that affect the outcome to better understand your potential situation. The Rent V Buy Calculator model does not take into account all factors that may be relevant.
As an example, let’s look at our first scenario – A purchaser is looking to buy a home at the purchase price of $550,000. They arrange a loan for $440,000 at the interest rate of 5.60% with a loan term of 30 years.
If we were to compare buying against renting a property over a three (3) year period (and also consider all the costs incurred) and the house was sold, you would be better off renting the property as you would save $8,757.
In other words:
- RENTING: $1,800 per month (rent) @ 3 years = $66,744 (yearly rent increase 3%)
- OWNING: $440,000 (loan) @ 5.60% @ 3 years (plus incurred costs) $125,001 minus $49,500 (property appreciation) = $75,501
$75,501 - $66,744 = $8,757
Better off renting as you would save $8,757
However, let’s look at our second scenario – A purchaser is looking to buy a home at the purchase price of $550,000. They arrange a loan for $440,000 at the interest rate of 5.60% with a loan term of 30 years.
If we were to compare buying against renting a property over a seven (7) year period (and also consider all the costs incurred) and the house was sold, you would be better off owning the home as it will cost you $48,387 less than renting over the 7 year period.
In other words:
- RENTING: $1,800 per month (rent) @ 7 years = $155,736 (yearly rent increase 3%)
- OWNING: $440,000 (loan) @ 5.60% @ 7 years (plus incurred costs) $222,849 minus $115,500 (property appreciation) = $107,349
$155,736 - $107,349 = $48,387
Better off owning as you would save $48,387
So if you are considering helping your children, click on the image below to find out how much money you could be saving.