Big or small mortgage?

I’m a single professional, first home buyer looking to buy a modest property as PPOR.

I’ve saved up a 35-50% deposit on a strata apartment in inner Melbourne (or outer suburbs for a unit). As apartments and units don’t grow in value very much, is it better to buy a larger 2br property at the upper end of my budget, or a smaller 1br property that I can pay off quickly?

Obviously I’d prefer to have more space but I’m equally terrified of having a bigger mortgage. The difference in price is 75-100K.

What are the benefits of repaying a mortgage within 10 years, except for reducing interest?

 

in general (very general), 2 bed units appeal to more people. 1 bedders have a more limited market. Benefits of repaying a mortgage within 10 years is that you will be debt free faster. Units also go up, though less restricted supply may mean they rise less than houses. Avoid highrises and anything with pools, lifts, gyms, etc.

It really depends on your objectives. Most people here tend to want to buy more, own more, and (hopefully) get more gains in the future. If you want to just pay off your own place ASAP, thats fine too.

 

What do you want to do with the apartment longer term?

If it was me that would influence what I'd buy and how I'd manage the debt. No financial advice below, just examples...

E.g. If my intent was to live in it for the long term as a PPOR then sell it and upgrade in 10 years time, then I'd probably gravitate toward the 1 bed and hammer down the debt as quickly as possible.

E.g. If my intent was to keep it and convert it to an IP longer term I'd consider using a smaller deposit (20%), ensure all my surplus funds are accrued in the offset account rather than pay down the principal, and then when I move into buying my new PPOR I can knock the non deductible PPOR debt down as quickly as possible. I'd also be more inclined to look at a 2 bedroom as in many areas these are easier to generate a higher yield based on people sharing together etc.

 

I'd never buy a 1br apartment. They don't tend to increase in value much. I've had clients buy small apartments and sell them for about the same price years later, whilst the rest of the market has doubled.

The benefit of repaying a mortgage quickly is you no longer have a mortgage. Paying off debt is a good thing.

That said you can pay off debt in a strategic manner to optimise things. How you do this depends on your goals and expectations for the medium and longer term. If you simply intend to buy this property and live in it indefinitely, then paying down the loan quickly might be the way to go. However if this is going to be a stepping stone to something else as your circumstances change, then doing something different might give you a better outcome. An example of this might be to pay the loan down via an offset account, to give you a better tax outcome should you upgrade and this property become an investment.

Structuring your lending properly can have a big outcome years later. You're about to make a significant financial decision. Have a think about where you expect things to go later in life. then get some decent advice on how to structure your purchase and lending to accommodate your plans.

 

What is your sleep at night factor ? over time most properties go up by roughly the same amount. If you borrow an extra 100k at today's rates that's only an extra $100pw.

 

I guess it comes down to what you want to achieve financially, ie. keep it and live in it, rent it out, sell it after you've paid it off etc.
What terrifies you about a larger mortgage?
Does using all or the majority of your hard saved money towards the deposit and costs scare you?
You might be better off investing that cash elsewhere or keeping some as a cash buffer - something to consider, might be a good idea to get some financial advice?
Some good answers above

 

With a 2 bedroom property you might be able to get a boarder in to help offset the extra repayments. If you ever decided to move out, it may be easier to rent a 2 bedroom property than a a 1 bedder.