Aaron Whybrow explains how banks stress-test mortgages differently for owner-occupiers versus renters. A $100,000 loan at $1,000/month gets tested with a 2.5% rate hike, but rent is assessed at actual cost with no buffer. Your choice between buying or investing depends on your risk tolerance.
Lets have a chat today. Renters and owner occupiers when they want to buy an investment property. Hey, it's Aaron from Diagnostics and Finance. A couple of questions that come up recently is should I buy another investment property, should I buy my own property? Or how can I get more out of the serviceability calculator to buy the next investment property? So let's break it out in the serviceability calculator that we look at across all the lenders at the moment with an owner occupied mortgage. If you owe, say we're just going to pick small numbers, $100,000 and you have to repay $1,000 a month of that 100,000, you repay your $1,000. When we go to borrow more money, that 100,000 is now your actual interest rate plus 2.5%. So your actual repayment that is judged to get more money is not $1,000. It's it could be maybe $1,500. So it's already tapped you down a little bit about where your borrowing was up here or your goal was up here. Now it's jumping down a little bit more because of the calculators. There are some calculators that will take your actual repayment plus a buffer or your actual repayment. So they're available for different circumstances. But in the Main It's a 2.5% uplift on your loan repayment calculator taps your serviceability. On the other hand, conversely, if you're a renter and Your rent is $3,000 a month, we just put in $3,000 a month. Rent isn't buffered at all because rent obviously a lease is short term six months where a mortgage is, you're signed up for 30 years. So we've got to accommodate more problems that potentially could happen over the 30 years versus say six months. You might be able to get a lower, a lower rent. So the risk is potentially balanced a little bit more in the favor of the people renting. And right now some of the market you might find that the rent on a big property that you want to live in is quite good versus your own place or you might find that your own place is needed first before other ones. So in the serviceability calculator related to rentvestors, you it's probably in their favor a little bit because we're only putting the actual dollars on there depending on where they're living. Obviously where you could have exuberant rent and have the same problem as someone with a small mortgage in a different suburb. So it can't be much of a muchness, but we are finding that the calculators are serving the rent vestors a little bit more than the owner occupies, especially the owner occupiers who have a large mortgage. Conversely, if you've got your large mortgage under control and it's now a small mortgage, the renters are now not getting the benefit of borrowing. So you own an $800,000 house with a $50,000 debt on it, or you're paying rent of three grand a month. We're going to find that the person that's got their mortgage under control is going to be able to borrow more stuff versus the rentvestor who's got only their rent and their cash. So everyone's got a different situation. But how can we make the choice? Do we buy our own house or do we buy more investments? Well, here's the take own house personal choice. You can have your pink door, you can have your whatever you need in your house, you can have your funky kitchen, whatever it is that you want. You might be able to accommodate life a little bit more. Growth of a family, security, safety, all that nice stuff can come into that choice. Or your investments, you might be going, well, I'll delay the satisfaction maybe and go down the path of the investment properties. But that has its risks too. Investments all have their risks, so that could go one way or another way depending on your income source. Jobs might change, locations might change. It is not a one stop shop or one one shoe fits all answer here. What it is is to understand how the mechanics of getting the money works so that you can go down the path of making the right choice for your circumstances and your needs. Hey, it's Aaron from Diagnostic Finance. Just want to unpack that a little bit because I've been asked a few times, should I invest or should I buy my own place? So look at the service calculators, look at your own situation and go from there.
