$2 Million Chunky Home Loans - How Do People Feel Comfortable with It?

virhlpool on 23/07/2023 - 22:42
Last edited 23/07/2023 - 23:35

I see people buy $2m to $3m houses as if it's a cakewalk (very common in Sydney and parts of Melbourne).. Of course, some upgraders have a significant deposit from their previously sold house so they need a smaller loan but it's also not uncommon for the others to take a huge loan (80% of the house price) and go for such a house. Btw, I am not referring to any luxury home in a top-end suburb - $2.5m doesn't fetch you that in Sydney anyway. I wonder how these buyers feel comfortable with such massive loan amounts even if they have a borrowing capacity as per the banks' definition?

$2m PPOR loan holder would need to pay $12,500 a month in repayment at present and at least $8k-$10k a month even when interest rate gets lower. Remember, this goes from the 'after tax' income. More importantly, this commitment is for 30 years so an ability to pay this amount 'now' gives little reassurance, unless one sees a VERY stable income over the next couple of decades at least. Given how shallow the job market can be in turbulent times, most jobs aren't 100% secure on a 'permanent' basis, let alone the income. I wonder how do people feel ok with such a commitment every single month given obvious risk factors? Keen to hear views of people.

Financial Home Loan Loan

Comments

    • Geoff01 on 24/07/2023 - 08:45

      that price is easily achievable in west Oz. But the gaps are closing.

    • Brianqpr on 24/07/2023 - 13:36

      In apartments in the outer suburbs probably.

    • abb on 24/07/2023 - 22:06

      They rent broken down slums from the rich people, of course.

      • infinite on 27/07/2023 - 13:35

        That's all they'll ever have too if they never bother to take any financial or professional responsibility for themselves.

    • trapper on 25/07/2023 - 11:36

      Come to Perth :)

    • infinite on 27/07/2023 - 13:34

      Where do poor people who can only afford a $500k house live?

      Outer metro suburbs and areas, like most others.

  • trustnoone on 24/07/2023 - 01:41
    +2

    $2m PPOR loan holder would need to pay $12,500 a month in repayment at present and at least $8k-$10k a month even when interest rate gets lower. Remember, this goes from the 'after tax' income. More importantly, this commitment is for 30 years so an ability to pay this amount 'now' gives little reassurance, unless one sees a VERY stable income over the next couple of decades at least. Given how shallow the job market can be in turbulent times, most jobs aren't 100% secure on a 'permanent' basis, let alone the income.

    I'm no expert so this could be very wrong but I think there's a bigger complexity too it. First off it isn't about buying a home in a good area, its about buying a home in an area with growth, the idea is you buy a 2mil home, and a few years down the track you sell it for 2.5mil or 3mil. For a long time property price has been going crazy up like that. And typically interest rates are also not as high as they are, so mixed that with a lower rate.

    You also don't have it as PPOR but instead its an investment property, this is used for negative gearing against your doctors duel income thats being massively taxed. Or some business you're getting big money from but can only last a small amount of time.

    Parents is another one that shocked me. Seeing many people getting upwards of $500K to $1Mil from parents or they purchased a place early that they've gifted to their kid (or inheritance) where kid is now starting a family and needs to sell for a bigger place.

    Last thought, I know a few people who just live on credit. Shocks me a bit, but day to day they never pay off their property. How they got the original loan I have no idea, but they just pay off the interest, live week to week on credit cards. Sure they do get paid well. But yeah I think some don't realise they aint paying that back.

  • stirlo on 24/07/2023 - 06:42
    +1

    You're looking at mortgages for the desirable areas of Australia's biggest and most expensive city. Those areas make up about 10% of the city and about 10% of the households in Sydney have the money to afford it. Seems about right.

    • virhlpool on 24/07/2023 - 09:05
      +1

      I dare say ample amount of properties in more than 50% of Sydney command these prices now so we aren't referring to any rarity here.

      • gromit on 24/07/2023 - 11:31
        +2

        The median dwelling value in Sydney is just a tick over $1m (that includes units and houses), for just houses I think it is closer to $1.5m, either way $2m is NOT the norm, it is the upper end of the market.

        • virhlpool on 24/07/2023 - 11:37
          -1

          I wonder if you would call all of these upper end - The Hills Shire or even some suburbs in Blacktown council (e.g. The Ponds), many suburbs in Parramatta council (e.g. Epping, Carlingford), or almost whole of Ryde council. If these are upper end then not sure what is inner west. The core issue is - a majority of Sydney is desirable and upper end by this definition.

          • gromit on 24/07/2023 - 12:24
            +1

            @virhlpool: price wise, yes many of those are int he upper end due to their location. Reality is MEDIAN is the $1m NOT $2m, if you are in the $2-$3m bracket you are in in the top segment of the market.

  • ForkSnorter on 24/07/2023 - 07:59
    +1

    $2million chunky home loans - how do people feel comfortable with it?

    They don't. They have significant anxiety about this huge risk and huge financial burden hidden somewhere in their sub-conscious, preventing them from achieving true happiness.

    But seriously, most people do not take out such large loans. I don't know a single person of my generation who has taken out a loan over $1 million, and I only know 1 person of the older generation who can afford to purchase such expensive properties.

    • virhlpool on 24/07/2023 - 09:06
      +3

      You don't know many Sydneysiders then. You can't buy a property without such big loans in many suburbs.

      • ForkSnorter on 24/07/2023 - 09:09
        +1

        Yeah, and the majority of Australians aren't living in those suburbs. We're talking about a tiny minority of people.

        Outside of Eastern/central Sydney, Inner-city Melbourne, Byron Bay and Noosa/Sunshine Beach, you can get a luxury mansion anywhere in Australia for $1.5 million.

      • meumax on 24/07/2023 - 12:06
        +1

        Yes you can. You just need a bigger deposit. I put more than 50% down on my $2M+ house so I could have a smaller mortgage.

        • Exorcist on 26/07/2023 - 19:10
          +3

          Yeah I put 95% down on my 20m house too

          • OrangeBJ on 27/07/2023 - 02:26

            @Exorcist: with the other 5% in offset account? nailed it.

          • meumax on 27/07/2023 - 11:30
            +1

            @Exorcist: I sense disbelief.

            But it's not so hard to achieve given how much assets have grown over the last 20 years which is about how long I've been investing. If you started investing in shares or got on the property ladder 10 years ago and were slightly above average wage, you'd easily have $1M today.

      • MrFunSocks on 25/07/2023 - 11:57

        The people buying $2mil+ homes aren't getting a $2mil+ mortgage. There are lots of rich people in australia, and they tend to live in expensive properties in expensive cities like Sydney.

      • CheapskateQueen on 25/07/2023 - 20:51

        correct, townhouses in crap suburbs in South West Sydney now want 1.3m+

  • Trying2SaveABuck on 24/07/2023 - 08:40
    +1

    It is crazy to me but like all things 'lets do math'

    Source
    https://www.yourmortgage.com.au/calculators/how-much-can-i-b…

    To borrow 2m you need to have ~400k p.a on a 6.5% interest rate

    Personally speaking it makes no sense to borrow that 'kind' of money on a owner occupier property

    if you are a single person earning 400k you're paying around 170k in income tax - you would be better off borrowing 2m as an investment and renting in the area you 'wanted' to live the interest payments would be tax deductible.

    im no accountant nether do am i rich enough to imagine what it is like buying these kind of houses but people like the guy who put his Lambo into his apartment would be buying stuff like this and just paying 'cash'

    • FrugalDealHunter on 24/07/2023 - 08:56
      +2

      With that coin, I think a more realistic scenario is they build a deposit fairly quickly and take a lesser loan

      • virhlpool on 24/07/2023 - 09:03
        +1

        You are underestimating the bullish property mindset here. In that case, they will buy a 'better' house with an even bigger loan.

    • May4th on 26/07/2023 - 19:59
      +2

      two things - land tax and capital tax exemption on PPOR. even if you live in a tri-level 7 bedroom mansion by yourself you are better off if there is significant capital growth as opposed to renting it out as an investment property, provided cashflow isn't an issue

  • tonka on 24/07/2023 - 09:02

    Several scenarios,
    Older persons not borrowing and wanting to sink inheritance into residence to qualify for pensions etc.
    People with residual income in shares etc
    Dual income couples over capitalizing and perhaps negative gearing.

    • djones145 on 24/07/2023 - 12:55

      you forgot
      bikies

      legit answer, these guys overpay so they can give close to each other, prolly pay cash on the houses too ;lol

      • Save Medicare on 25/07/2023 - 10:16

        Seriously, where do they get all the cash? I can't believe a 5-10k motorbike can be such an investment

        • Bikies on 25/07/2023 - 13:31
          +1

          Not telling.

  • Lawrencep93 on 24/07/2023 - 09:40
    +11

    Many people buying 2-3mil homes have 1-2mil in Equity and are not getting 80+% LVR loans for these homes. Paying down debt from their prior residence whilst having a massive increase in the PPR's value they lived in, Debt recycling and other strategies usually people buying a 3mil property are shifting around cash across other investment properties, shares, investment trusts…. and have the cashflow to fund a larger loan.

    • rambao9 on 24/07/2023 - 10:03
      +1

      Lawrence is on the money, it's this ^

      Not just in the $2-3m bucket, for anything $1m+…

  • pharkurnell on 24/07/2023 - 10:09
    +6

    Personally it would kill me. I hate owing 100k, (profanity) I hate owing $10 to a mate….

    Owing $2mill to a parasite organization like a bank that can bend you over anytime they like…. no thanks

    FWIW, my olds sold their place for $780k in 2002… it sold this weekend for just over $3.6 mill + stamp duty, fees, and lubrication…

    • Ghost47 on 24/07/2023 - 14:13
      +3

      I agree. Even if I earned $300k I would still be careful with my money.

    • infinite on 27/07/2023 - 13:41

      With rent prices being what they are now, you effectively "owe" a smaller amount each week in mortgage repayments to a bank than a rental owner via their landlord.

  • 2esc on 24/07/2023 - 10:22
    +5

    It always surprises me how people have preference for big and flashy rather than financial security and less stress. Just because you are able to borrow x amount doesnt mean you have to. The bank was prepared to loan me twice what i wanted but i rather not have that hanging over my head. If i had borrowed what they said i could i would be hurting now.

    • stirlo on 25/07/2023 - 00:23
      +4

      These purchases aren’t really big and flashy though. It’s mostly paying for location and better lifestyle (and reduced commute time). The average property in these areas isn’t some outrageous McMansion but rather a well located property enough land to have a backyard.

      If you can afford it the time saving and lifestyle benefits are large and unlike other showy purchases (cars, fashion, jewellery) you can actually see real investment growth over the long term.

      The people making real financial mistakes are those financing new European cars, buying expensive handbags, and building a 50sq home in Oran Park because they think their possessions and size of their home impress others. They’re slaves to debt with a 3 hour commute each day burning all their time trying to afford depreciating junk

      • CheapskateQueen on 26/07/2023 - 22:08

        correct.

        I'm house hunting atm and it's really depressing. By house, i mean town house, because i don't have $2.5-3m

        i just can't believe it though. even just 6-9months ago $1.2-1.3m wouldve given me heaps of really great options. Now i need $1.5m for the exact same thing. IDFGI how can prices keep sky-rocketing like this even in a 6 month period????

    • infinite on 27/07/2023 - 14:24

      This is already how most people approach it.

      Only the financially ignorant would think huge numbers of people are taking mortgages to the hilt. Banking regulations don't let borrowers get even remotely close to that financial position anyway.

      If people were behaving that way, banks would be going bust all over the country due to mass-foreclosures. But they aren't, because on average in Australia there are less than 300 foreclosures a year from all lenders in total. Those foreclosures are almost all the result of single people with no next of kin, who pass away decades earlier than expected, due to fatal diseases or accidents/crime.

  • KaTst3R on 24/07/2023 - 10:23
    +1

    Because we make enough dough to afford a $2m to $3m property with sufficient buffer.

  • CodeXD on 24/07/2023 - 10:24
    +2

    DINK - Dual income, no kids

    • JimB on 25/07/2023 - 14:13
      +1

      After having kids, I'm not sure how any childless couple aren't all millionaires haha

  • coffeeinmyveins on 24/07/2023 - 11:21
    +4

    I wonder how do people feel ok with such a commitment every single month given obvious risk factors? Keen to hear views of people.

    When you have a $500k salary or two people with $300k, a $2-3m mortgage doesn't mean much tbh. You're looking at your own financial position and trying to think how you would afford them, when you should be thinking from the other side of the fence.

    There are other factors as well obviously. My parents and inlaws have 3 houses between them, so when they all pass on, we'll get a share of that. I'm guessing a lot of people are in that boat too.

    • virhlpool on 24/07/2023 - 11:54

      The other factors you mentioned are fair points. As for income, seeing how many houses get snapped up at insane prices, I doubt these many households in Sydney have combined income of $500k-$600k. And, 'consistency' of that income is a whole different discussion.

      • coffeeinmyveins on 24/07/2023 - 11:55

        Equity growth in their current residence.

        If you bought a house for 700k 10 years ago, chances are it's worth 1.3m now.

      • infinite on 27/07/2023 - 14:33

        Foreigners are also buying up the land via using their permanent resident family members, too.

        You aren't just competing with locals to buy these properties, you are competing with people who come from countries that don't have inflation issues, a weak economy, weak currency or earning power now - as they weren't stupid enough to do Covid shutdowns and print money for billions/trillions in welfare payments to sit around and do nothing for months or years on end.

  • Drakesy on 24/07/2023 - 11:23
    +4

    Yeah, Australia's property market is dominated and controlled by the wealthy/Cashed up international buyers that need somewhere to stash their cash that isn't China. Sydney and Melbourne is largely old money. These people i'd assume would've inherited a good 50% of their house value.
    Or they're a surgeon and lawyer/engineer.

    It's cooked and no one's willing to address it.

    • virhlpool on 24/07/2023 - 11:28
      +2

      There seem to be too many surgeons, lawyers, engineers and doctors in our society (and of course tradies).

    • Ghost47 on 24/07/2023 - 14:16
      +2

      Not only is no one willing to address it, plenty of people still think prices are reasonable (hence why people are still buying houses).

      The amount you pay in this country for a poorly insulated and built house is just mind boggling. The entire industry is corrupt as well.

      • infinite on 27/07/2023 - 14:36

        The standard for every previous generation in Australia who purchased a first home, was one that didn't have any of those things. What makes you so special that you are entitled to a standard better than any of those people ?

  • jrvb42 on 24/07/2023 - 11:46
    -2

    Sure some people make it seem like a cake-walk.
    Maybe talk to the people who are in mortgage prison and/or negative equity (and/or divorce) due to increasing rates on a mortgage they should never have applied for nor been given. Am thinking these people will be more numerous in coming months, and maybe the cake-walkers fewer at the same time.

    Meanwhile I'll continue to advocate for housing to be declared an essential service with (rent) pricing controls just as exist for electricity, gas and other essentials (even though those prices are also going up radically). What's happening to rents, where renters are paying for landlord greed and stupidity - and government are allowing it - is almost criminal, and should be so. (And no, I'm neither a landlord currently, nor a renter - but I can certainly see who should be suffering, and it isn't renters).

    • virhlpool on 24/07/2023 - 11:51
      -2

      What's happening to rents, where renters are paying for landlord greed and stupidity - and government are allowing it - is almost criminal, and should be so.

      Yes, renters shouldn't be bearing all cost of over-borrowed money by the greedy investors, which is what many investors are trying to do at the moment. There are some exceptions and we should appreciate that.

    • trapper on 24/07/2023 - 11:54
      +4

      What's happening to rents, where renters are paying for landlord greed and stupidity

      Renters are paying the market rate. There are not enough houses for rent, that is why rents are rising.

      • virhlpool on 24/07/2023 - 11:55
        +1

        That's a totally fair logic there. I don't mean only investors are at fault.. In fact, it's government whose poor planning is clearly showing up here. Opening mass immigration (and student visas) at the time of severe housing shortage is an example.

        • Ghost47 on 24/07/2023 - 15:54
          +4

          it's government whose poor planning is clearly showing up here.

          Immigration isn't the only example of poor planning either. We have a houses-first mentality when it comes to growing our cities. Houses are built in woop woop without adequate infrastructure like schools, train stations and shopping centres.

          It's a serious addiction we have to housing and sadly most people don't care (especially people who own it because it makes them money), but it's going to backfire immensely in the coming years.

          • virhlpool on 24/07/2023 - 17:55
            +3

            @Ghost47: 100% agree - and funnily enough, so called 'houses' are being sold for $1m-$1.5m in far off locations where there's a serious lack of infra that you mentioned.

            • Ghost47 on 24/07/2023 - 18:02
              +1

              @virhlpool: It also makes life inefficient for people living in those locations because it takes time for them to commute to and from work/school, leading to more pollution and CO2 in the atmosphere if they choose to drive. If they don't drive they can end up commuting for hours if they decide to use public transport (i.e. buses, not trains) which leads to burnout and unhappy workers, which in the long term is not good for our economy overall.

              It's just extremely idiotic, no foresight or critical thinking whatsoever.

          • infinite on 27/07/2023 - 14:43

            @Ghost47: That's because gradual planned suburban expansion has always been a development winner and success for any population.

            The house-last mentality of instead developing subsidized inner city ghetto's has only ever led to mass failure and decline. Due always to the culture it brings to those areas of generational welfare dependency, overcrowding, crime, drug problems and violence that mass density inner city developments like that inevitably lead too.

    • infinite on 25/07/2023 - 11:36
      +1

      What's happening to rents, where renters are paying for landlord greed and stupidity - and government are allowing it - is almost criminal, and should be so.

      Renters are paying for Government greed and stupidity, along with Government's inability to control spending or reel in the cost of the welfare system. Rental owners are simply passing those costs directly on to the renters, because renters keep voting those people causing the problem in to power in the first place.

  • meumax on 24/07/2023 - 12:01

    I doubt many people are taking on $2M loans. It's likely as you say, financed largely from a sizeable deposit and a smaller loan.

    That's not hard to believe given the growth in property/share prices in the last 20 years. If you started investing or got on the property ladder 20 years ago, you'd have a fair bit of equity (plus maybe mum and dad help out), you'd be mid 40s, which is the typical age salary peaks and coincides with your need for a large house for you presumed growing family.

    • surg3on on 25/07/2023 - 14:29
      +1

      If you can pay off a mortgage in 5 years you dont really need a mortgage!

  • pnt on 24/07/2023 - 15:41
    +1

    As long as prices keep rising, they are making money, and are happy, and can get out if their income changes. Many people think past performance is indicative of future results.

  • porsche26c on 24/07/2023 - 16:31

    I would say most of these loans are from people who purchased 5-10 yrs ago. Had huge equity growth so are just sizing across to something different or slightly larger.

  • MITM on 24/07/2023 - 17:00
    +1

    Why do people think rates are going to come down ? They are going to remain here for some time and then reduce moderately to the norm. They certainly ain't going back down to 2%. Proof is that the new RBA will meet 8 times a year instead of monthly from next year.
    High rates are here to bleed you dry and vacuum up the excess cash pumped into circulation over the last 2 decades since 9-11. Sometimes it can take a generation to get the balance right. East/West Germany is a prime example.
    Act 2 is to normalise unemployment back up to 5%, even more.

    • We Out Here on 24/07/2023 - 17:08
      +3

      the current rates are the norm

      i predict they will go even higher

    • virhlpool on 24/07/2023 - 17:57
      -1

      Definitely.. 2% loan rates (as a result of ultra low cash rate) was a 'mistake' in the hindsight which caused this mess and it won't be repeated.

  • echelon6 on 24/07/2023 - 18:26
    +4

    OP I see your posts on Propertychat too, you seem absolutely fixated on this. Over there you're hoping the RBA crushes the economy, and here you have posts like this. Maybe you're on whingepool and ocau too. No real point I'm making here, I just hope you get some peace. Maybe one day you can buy a fat house for yourself and maybe you'll get your peace.

    • infinite on 25/07/2023 - 11:37
      -1

      OP's comments are reading like something that leaked out of Reddit.

  • MoonlapseVertigo on 24/07/2023 - 20:01
    +3

    Hey man, I often have the same thoughts about “who are these people with $500k for a house deposit”.

    I have friends who live in the Kellyville/The Ponds area of Sydney, where houses there are $2M. Large Indian population in the area and often there are two families living in a 4 bedroom home, both on the mortgage, so 4 incomes.

    This isn’t a thing in my culture, my wife would go insane if my mum lived with us. But some are doing it now to get into the market

    Other examples are anyone who invested in Sydney real estate within blue chip suburbs earlier than 2014 really, as the capital growth was 38% in one year alone for these suburbs during covid, so for some, upgrading to a $2M is literally a swap for swap

    All the best!!

    • virhlpool on 24/07/2023 - 21:04
      +1

      Large Indian population in the area and often there are two families living in a 4 bedroom home, both on the mortgage, so 4 incomes.

      This is common even in Asian communities (especially with old aged parents since children often don't want to put them in age care) but those old parents don't earn obviously. So, even though there are four adults living in a house (+ kids), there are only one or two incomes at max.

      • stirlo on 25/07/2023 - 00:29
        +2

        There’s still the saving on childcare with grandparents providing it for the children and the assets of the parents can be used to have a larger deposit. So there are benefits to this arrangement that aren’t seen in the “typical” Australian household.

        • infinite on 25/07/2023 - 11:40

          OP also seems completely ignorant to the fact that old's do in fact "earn". They have a guaranteed aged pension payment from the government and they also have superannuation payments of one form or another on top of that.

          It's not uncommon at all for a family member to retire and go from earning less than you to suddenly having a better cash flow than you.

          • OzzyBoy1 on 27/07/2023 - 14:29

            @infinite: So you saying that Indian oldies like grand mothers and grand fathers who are helping with child care are getting pension payment from Australian government? If you think so you gotta be kidding as they're on visa here. And if you saying they getting aged pension from government overseas (for example India) do you really think that Rupees they get as pension will help with housing prices in Australia? Either way, you're not correct..

            • infinite on 27/07/2023 - 14:46

              @OzzyBoy1: I never mentioned Indian people once, I only referenced "old" people.

              What is your racial obsession with Indian people and why are you projecting that on me?

      • SupeNintendoChalmers on 25/07/2023 - 15:20
        +2

        This is also very common in Mediterranean\middle eastern and Latin American cultures.

  • imurgod on 25/07/2023 - 07:34
    +1

    You need $250K plus to live in Sydney now.

    If you haven't achieved that, forget the property market.

    Also, you don't need to pay it off. Rent it out until there is a capital gain you're happy with, sell it and move onto the next one.
    Eventually you can end up with a portfolio of properties you own outright.

  • bigbadboogieman on 25/07/2023 - 07:45
    +2

    I met someone recently. Dual income household with one kid. Bought a ~ 1.4m house with 10% deposit - fixed at 5.29% for ~4 years or so. No LMI as wife works at the bank (no fee and charges for bank employees). They were so proud of their purchase. The interest component alone was roughly 5K a month. I asked how will you service the loan if one of you loses your job and he got pretty angry. His response was we are used to living in austerity. What good is the income protection insurance in our super if we can't use that.

    • May4th on 25/07/2023 - 11:57

      Shit happens sometimes, you can mitigate risks as much as you can through income protection, saving up for buffer etc. You can't live your whole life preparing for the worst though. The alternative is forever renting and having potential eviction hanging over your head each lease renewal that that's not fun either especially with a family and the rent soaring

  • May4th on 25/07/2023 - 11:47

    there's a reason why it's called a property ladder, those riding the capital growth since 2014 would have a decent equity with their initial 600k home turning into 1.2mil in 6-7years and upsizing to a 2.5mil home on a decent income is within reach for those with a decent stable income

    it's quite depressing though however for today's first home buyers when a house in a less than blue chip middle ring suburb in Sydney will cost 1.5-2mil minimum and closer to 2-3mil if you want a decent place that doesn't need a bit of work that's big enough for 2-3 kids

    • virhlpool on 25/07/2023 - 13:20

      it's quite depressing though however for today's first home buyers when a house in a less than blue chip middle ring suburb in Sydney will cost 1.5-2mil minimum and closer to 2-3mil if you want a decent place that doesn't need a bit of work that's big enough for 2-3 kids

      This is so true. And you know how apartment room sizes have been shrinking over time. A 2-bedder is hardly a 1.5 bedder. So apartment isn't an alternative solution in most cases.

    • drfuzzy on 26/07/2023 - 23:59
      +2

      In 10 years in the future another generation will be saying in 2023 you had it easy as you could buy a great place for only 2-3 million no sweat and ride the property boom. Now in 2033 you need 4-5 million and the young people have no hope and resent the generation below.

  • pogichinoy on 25/07/2023 - 18:22

    For Sydney, they'll have well paying jobs with supplementary passive income streams supporting their salary to afford these high mortgages.

    $2.5M can get you a tidy home, e.g. https://www.realestate.com.au/property-house-nsw-westleigh-1… (Asking price for this is ~$1.9M)

  • netsurfer on 25/07/2023 - 21:20
    +2

    There are a lot of rich people. I have a lot of family friends who are doctors and my parents constantly remind me that I didn't study hard enough when I was young (that's why I am struggling). Not just doctors, some family friends have their own companies making big bucks. It's true a $2million+ home loan is hard for us to imagine, but to me, it is not uncommon (friends and family friends have them). Do bear in mind that:

    • People who have $2 mil+ home loans don't actually use the entire amount. Those people will still borrow the maximum. They have offset accounts. The excess amount is just in case they need that money for something else.
    • It is necessary for them to borrow more as that gets them better rates as well. Think about it, if you borrowed $10,000, bank is not going to give you a good deal. I also think mortgage brokers prefer you to get highest amount.
    • A friend of mine bought 6 investment properties 20 years ago. That's 6 income streams + both his wife and him work full time (so 8 income streams in total).
    • Talking to a real estate agent recently, I was told there are people (local and overseas) who just pay cash when buying houses.
    • Another real estate agent I spoke to a few years ago raved about having 10 properties (obviously still paying some of the loans).
    • If those rich people have overseas connections, they could borrow money from overseas banks at a lower interest rate (but they need to have assets overseas though).

    In short, some people are just successful and doing well.

    No point thinking about why they want to borrow that much. It is more important to think about how to earn more money to join them. Sorry, but spending too much time on OZB won't help.

    • infinite on 27/07/2023 - 15:09

      All great points.

      A lot of people also use their own small businesses or cash-in-hand contracting to minimize their taxable income and afford payments up-front for a discount.

      They use that ability to purchase land and build on it with the stamp duty discounts and FHOG benefits coming with it saving them money, then pay with cash from that cash-in hand earnings (or effectively the same via tax minimization) for significant parts of the build. They then flip the home 5 years after it's finished and with the money saved on that plus a bit of equity, they use the funds to purchase outright in a better area.

      There's also those who elect to work overseas for 5-10yr periods, who can freely use the super they generated to put towards the home loan deposit. Many Australian's don't realize we are one of the few places in the world that don't allow you access to your super to use for that purpose. I did this for my first place and the $80K I was able to contribute shredded the LVR on the loan, ensuring I had no serviceability or repayment issues.

      People like OP seem to think "rich people" just magically appear like a movie bad guy, or some magical entity grants them that wealth. Doesn't work that way. Wealth is generated over steps and over time. It's generated through good planning, dedication and financial discipline. It comes form a number of different sources and strategies, having to be managed over time. It also comes about thanks to layers of generational sacrifice and hard work from people who have common sense and realistic expectations about the number of financial and "fun" sacrifices you make over your early working years to have the rewards you want in the second half of your life.

  • ribze1 on 25/07/2023 - 21:57
    +1

    If a couple are earning north of $500k a year then a $2m loan is absolutely doable.

  • OzzyBoy1 on 25/07/2023 - 22:05

    Lot of rich and wealthy people out there. For example good doctors like surgeons easily earn 400 to 500k per year. Lawyers, Barristers, CEO, CFO, directors etc. as well. Also how can we forget politicians in Australia who have heavily invested in properties already. New RBA governor too has millions of $$ of portfolio. It’s difficult to imagine stuff when one is surrounded by people who’re not doing great money wise. There is always bigger fish out there. $2M isn’t much these days if you ask anyone. $5 or $10M is new $2M club I believe. Not all who have such loans are stupid either. They’re very smart themselves or have done some number crunching with their smart accountants. They will probably end up making more. Rich gets richer as the saying goes

    • serpserpserp on 25/07/2023 - 22:28
      +1

      good doctors like surgeons easily earn 400 to 500k per year.

      What do the "bad doctors" make?

  • serpserpserp on 25/07/2023 - 22:28
    +1

    but it's also not uncommon for the others to take a huge loan (80% of the house price) and go for such a house.

    Where are your stats on this? I'd say it is pretty uncommon.

    • infinite on 27/07/2023 - 15:13

      It's extremely uncommon.

      OP is straight up either parroting some clown on Reddit, or making it up.

    • infinite on 27/07/2023 - 15:21

      Additional comment, the average new loan amount being borrowed for residential owner occupied homes in NSW as of June 2023, including all loans with an LVR over 80% as well, is only $540K.

  • Duckie2hh on 26/07/2023 - 09:28

    Don't look at total amount owing. Just focus on the repayments.

  • [Deactivated] on 26/07/2023 - 12:11

    Have processed individuals tax payment to the ATO that went more than 3 times over my gross household income. 2 million is nothing for some, there is a lot of wealth and money here which is difficult for some to grasp.

  • jellykingdom on 26/07/2023 - 12:47

    i would dare say there's a lot of upsizers in there, who bought at the right time. It's not difficult to imagine having doubled the equity of your home in a few years. There were plenty of areas in Sydney where a property went up 100% in 5-10yrs. Also, if you bought at the right time, did some fixer upper work, or even more common knockdown and build a duplex, you've practically printed money.

    I didn't make anything resembling a fortune from my first apartment, and I don't pretend like I was some property genius, but by buying at the right time and doing some renovations we made $200k in 5yrs. Do that with a lousy house in a rapidly changing area, or build a brand new duplex, and you could easily have bought something for $750k and turned it into $3m (not all profit but still a good return!)

  • JafferMoney on 26/07/2023 - 13:29
    +3

    We've got over $2m in lending…80% LVR.

    Interest rates have increased quite steeply but it is what it is.

    I run my own business, wife works part time in a profession (has a masters degree etc) but the majority of the income is from the business.

    I guess I'm comfortable with being uncomfortable, I'm betting on my business growing, which it has done year on year for the past 10 years.

    We are in our early 30's, no money from parents.

    I don't plan to pay off the loan - this is where most people are risk averse / lack understanding of finance. We plan to borrow more using equity and invest in more property/other assets.

    • asdfasdfasdfasdf on 26/07/2023 - 13:59
      +2

      I think similar to you. A friend of mine asked me: when do you stop? My answer was, I won't. If I had enough, it is relatively straightforward to sell everything and enjoy the leftover money until I die.

  • mandelbrot on 26/07/2023 - 18:05
    +1

    Raises hand
    Got close to $3m in investment loans here ($0 loan on ppor). Sleep well at night.

  • drfuzzy on 26/07/2023 - 23:55
    +1

    Earn money. Pay money. It's pretty simple.
    I owe $2m++ but LVR is low and i work like an animal.

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