Opinion
My partner and I are separating. Should I keep renting or try to buy a property?
Paul Benson
Money contributorI would be grateful for any advice on whether to continue renting or trying to buy a property.
I am 54 years old with a school-age child, and my partner and I are separating. I earn $107,000 and have a super balance of $410,000, plus savings of $85,000. I am paying $650 a week in rent, and have been salary-sacrificing an extra $250 a week into super.
I will eventually inherit my 75-year-old mother’s unit and some money. The idea of a stable place to live is very attractive, but as I have left it so late, would I be better off renting in the short term and focusing on building my super (with a view to buying in 10 or 20 years, post-inheritance)?
Housing affordability varies greatly depending on where you live.Credit: Dionne Gain
If the amount currently going to rent and super were used for mortgage repayments it appears you could afford a loan of about $600,000 at current interest rates. Deposit and stamp duty requirements will depend on whether you have access to any first home buyer concessions. If you were a first-time home owner, you could also access some of the money you have salary-sacrificed to super under the First Home Owner Super Saver scheme.
Housing affordability varies greatly depending on where you live in Australia, but it seems likely you could manage to buy something now. Hopefully, you are able to work well into your 60s, from which point you could live off super and the age pension (once you reach age 67), and then whenever you receive your inheritance you could clear the mortgage and perhaps boost your super.
Owning your home certainly provides greater peace of mind in knowing you won’t be asked to move out. Barring any sharp rise in interest rates, your mortgage repayments are likely to be stable, whereas rent would typically increase each year.
It is worth keeping in mind that as a renter, you don’t have to bear the cost of maintenance, owners corp fees, council rates etc. So if you do decide to buy, ensure you leave enough in the kitty for those expenses on top of the mortgage repayments.
Paying down debt would appear to make a lot of sense.Credit: Pic: Jessica Shapiro
My 52-year-old husband is about to receive a $200,000 redundancy payout and is unlikely to find a job on the same salary. We’re considering whether to use the payout to reduce our $805,000 mortgage, invest in property or shares, or do a mix. We have two young children and lean towards a balanced/growth investment approach.
Paying down debt would appear to make a lot of sense given you expect household income to be lower in the future. Taking this course of action also produces a guaranteed outcome in the form of interest-cost savings.
Investing in property would no doubt entail taking on more debt, and would usually produce negative cash flow, at least in the early years, so it’s difficult to see how this is a great fit in your circumstance.
You could certainly put some of the money towards shares as something long term for the children, perhaps. The attraction with share-based investments is you can enter for any amount you wish, and the transaction costs are minimal.
First up, this payout is to give your household money to live on until your husband finds another job. But once that is in place, my inclination would be to focus on reducing the mortgage, perhaps with a small share portfolio established as something you could use to help the kids down the road.
Paul Benson is a certified financial planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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