Originally Posted by
Te Whetu
1) Current Net Worth : $23,000
2) Savings per week : $150 (half of $300)
3) Annual after tax return on investments 5%
4) In this case his net worth in three years would be $51,800
First scenario I'll run is purchase with no growth in house prices over three years.
1) Purchase a $205,000 property + $2,000 in fees etc.
2) Current Net Worth $21,000
3) Mortgage of $186,000 with payments of $300 per week (includes savings from not paying rent)
4) 7% mortgage rate
5) In three years the loan balance will be $175,000
6) In this case his net worth in three years would be $30,000
Now I would argue that this is a highly likely scenario in the current environment. But to be fair and reasonable I’ll also show what will happen with -2%/3% price change in property per year.
Second scenario is purchase house with 3% p.a. growth in house prices over three years.
1) Purchase a $205,000 property + $2,000 in fees etc.
2) Current Net Worth $21,000
3) Mortgage of $186,000 with payments of $300 per week (includes savings from not paying rent)
4) 7% mortgage rate
5) In three years the loan balance will be $175,000, and the property will be worth $224,000
6) In this case his net worth in three years would be $49,000
Third scenario is purchase house with 2% p.a. loss in house prices over three years, (reasonable chance as you will likely be buying a pour quality place which generally performs badly until the market starts to peek.
1) Purchase a $205,000 property + $2,000 in fees etc.
2) Current Net Worth $21,000
3) Mortgage of $186,000 with payments of $300 per week (includes savings from not paying rent)
4) 7% mortgage rate
5) In three years the loan balance will be $175,000, and the property will be worth $193,100
6) In this case his net worth in three years would be $18,000... i.e. you’ve paid a mortgage and gone backwards.
Cheers
Te Whetu