Bondage
I met her at the house; I'd not been there before and it felt somewhat strange to cross the threshold into what had once been a happy family home into what was now an empty shell, cold and devoid of anything homely or comforting. She ushered me through the living areas and into what was once the main bedroom, talking about bondage all the while.
Last night I went to take a look at a house my friend is looking at buying; She wanted another set of eyes on it to point out anything she had missed; It's her first house purchase and she's nervous. I was happy to oblige.
My friend and her fiancé have been looking for a home for a while and came across this one last week, a large three bedroom house built in 1982 and set upon just over 2,000m² of land. It's more than they need although provides forever house opportunity through it's flexibility and, whilst it will cost more than they would ideally wish to spend, it ticks many boxes.
I've been assisting them throughout the process; That's what twenty years in the property industry gets me - The requirement to assist people with my expertise for no financial reward. I'm kidding of course, these people are good friends and I'm happy to help them avoid possible pitfalls.
I've been involved from their initial thoughts on buying, to recommending a finance broker, building inspectors, conveyancers and, of course, the all-important market research. I know many people, have years of experience and have a lot of resources most don't have access to so the information I can provide them is valuable.
The property is an auction sale, deceased estate, and I'll probably be bidding on their behalf on the day; They're keen to buy it and are even calling it our house already. That's emotional buy-in.
Last night Faith and I went to dinner with my friend April, after seeing the house, and we talked about it, the auction strategy and bondage. I mean the mortgage of course.
Dead pledge
Mortgage, in literally terms, means dead pledge, from the Latin, mortuus and gage combined. These days it refers to the lending one secures to purchase goods and chattels and real property like houses, commercial, rural and industrial property; The document that secures the lending.
A financial institution (mortgagee) lends the borrower (mortgagor) money that incurs interest and is repayable over a set time-frame. The institution holds the borrowers title, the legal ownership document over the land, until the debt is repaid at which time the title reverts to the owner of the property.
It's a serious legal document and here in Australia most home-buyer mortgages are taken out over a 30 year period...Which can seem like a life time; A pledge until death so to speak.
I've taken great pains to advise my friend about all the possible scenarios around home-ownership and mortgages and, because she's a smart cookie, she's taken it all on-board. However, this property is asking more than she wanted to spend buy about 12%...It doesn't sound like much but it equates to an amount of $70,000 more in lending. When one works out the additional monthly repayment amount, then considers the additional amount over the 30 year term...It's a lot of money.
I did some quick calculations and based on a current variable interest rate the larger loan will cost $382,194 (in interest) over 30 years as opposed to the $338,718 (in interest) for their original loan amount - The amount they feel comfortable with. It's a lot of money. This is just the interest component of course, not the full amount repaid.
Monthly their ideal amount would cost them about $2,391 to repay over 30 years and the greater sum a total of $2,698 so quite a significant monthly difference between there ideal and the additional amounts. It doesn't leave a lot in the tank for repairs and maintenance or improvements and things that have a way of popping up with a house over time.
Of course, I'm not here to advise and direct my friends on their overall financial position or the purchase, just offer perspective and expertise which I hope helps them see things a little more clearly and leads them to a more informed decision.
I can see them in this house; It's perfectly suited to their needs now, provides options and scope moving forward and is very likely a place they could stay for a long time - I'm worried about the bondage-factor though, the mortgage.
I have seen the crippling effects stretching oneself too far with lending can have on a couple and the financial ramifications of getting it wrong can be devastating. But it's always their decision and I'll simply support them the best I can and leave the responsibility of the decision to them.
I've been through this myself many times, purchasing and mortgages, and have assisted thousands of clients over twenty years in this industry on commercial, industrial and residential property. It's been rewarding and mostly enjoyable - I've also gained a vast amount of knowledge, and perspective. But how about you?
Do you have a dead pledge mortgage story, good or bad? What are your experiences, thoughts and impressions on the matter. Are you the home-owner type or renter? Do you live in a yurt, apartment, palace, cave or other such shelter and why? Tell me about your mortgage success stories, or fails.
Thanks for reading and have a great day...If you're in mortgage bondage do something today to expedite it's end. * Design and create your ideal life, don't live it by default - Tomorrow isn't promised.
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