The average Australian has a very short financial time frame.
In a general sense, we can be divided financially into three categories.
Many live week to week, keeping negligible savings aside. Then there are those who think about the months or the years ahead and plan accordingly. But the successful investors and businesspeople think in decades.
Hopefully you see yourself in that third group!
Even for the third group, it is worth contemplating how short-term thinking can often interfere in the thought process. Waiting for interest rates to decrease before making final decisions on purchasing property is a case in point.
Coming off low rates, this thinking is understandable. Higher interest rates mean higher monthly repayments, increased budget pressures, and decreased borrowing power.
I keep reminding clients though: Recent rates were at 5,000-year lows! You need to look at those rates as an aberration, not wait for them to return.
The problem is interest rates are impossible to predict. There are far too many variables. Even the reserve banks around the world that set the rates often get it wrong! Making any decision based on such short-term predictions is a mug’s game.
The same applies to those waiting for property prices to come down. Yes, property markets are cyclical, and we do experience downturns. But waiting for the next downturn most likely means prices would still be higher than they are today!
While you are waiting, others are buying. In competitive markets, waiting for the ‘perfect’ moment, for interest rates or property cycle, might mean missing out completely.
Once you buy, and over the long term, time is your friend.
Many people may stress about if they ‘overpaid’ for property at purchase. In the long term, that does not matter. Inflation and capital growth minimise the question as the resale value increases over the decades.
Debt is eroded by time.
Our Reserve Bank targets ongoing inflation of 2-3%. That leads to higher home values and higher salary. However, it does not increase the mortgage liability.
As the purchasing power of one-dollar decreases, so does the fixed dollar value of your outstanding mortgage. What seems a massive debt today will seem a much smaller sum in decades ahead and will be easier to pay off with increased income. Regardless of future interest rates.
Buying sooner rather than later sets that process in motion. In the long term your mortgage erodes and becomes less of an issue.
Focus on what you can control.
What matters now is putting yourself into the best possible position you can.
· Refine your budget. Understand what you can afford in mortgage repayments, and where you spend your money
· Strengthen your position. Keep saving for a bigger deposit, reduce your debt.
· Partner with professionals. You need to be part of a group working with you to assist you in attaining your goals. Integrity Finance Australia should be an important part of your group.
The perfect time to buy is when you are able to buy. Concentrate on getting to that position. Do not get caught up in regular media ‘clickbait’ interest rate scare stories. Think long term.
If you believe you are in that position to buy now, what are you waiting for? Call us for a discussion, ask your questions, tell us what you are waiting for.
Integrity Finance Australia has been serving the community since 2006. If you have any questions on the issues raised in this article or borrowing capacity or your home loan in general, then please email support@ifafinance.com.au , or call us on 03 9511 8883