Get ready...it will happen !!!

That 5K is after tax money too so if you average tax rate is 25% you'll need to earn 6250k to cover that 5K

 

Cause he ticked all the banks boxes or as Jess said under-declared expenses. It is only in recent times that we as brokers are required to collect evidence of existing debts and provide to the bank. Previously banks would rely on stated debts and expenses with no further evidence required.

 

He clears about $1k a week. He bought his house for $30,000 in the early 80's, he now owes $250k against it (buy a new car every few years, then consolidate, over and over and over). He has moved out and bought another house with his new wife for about $350k, his daughter still lives in original house not paying anything towards it. He's $600k in bad debt at 60 years old, new wifes name would also be on the new house though.

 

Oh gawd....

 

Where is the jaw drop emoticon?

 

Should be a pooping emoticon

 

Well, there is people like that in Sydney as well.

Don't forget, it has gone up more than .25 over last 1.5 years, if you have a greedy lender, you may have gone up quite a bit and not had cuts passed on or very low cut. May not be normal mortgage either.

Couple that with not being able to afford original loan, then yes, better to sell off now, while you can get a good price.

They may also have had a pay cut or an addition to the family or a large unexpected bill.

May also be the drinks talking

 

Just LOL

 

If you can afford a $1M loan with a bank at 7% sensitised rate then you can afford a couple of percent rises. What is $5k. If this person rented they'd pay more by elevating there standards... Again another silly example, tell your brother to analyse where he/wife wastes money in their life. I'm sure they can cut back $150 a week. Do they lease cars? Do they eat out? Do they drink most nights? Do they smoke? Do they eat eye fillet/top cuts of meat? Do they have gym subscription? Could they shop their electricity/phone/insurance providers?

People with $1M mortgages on PPOR typically have a lot of fat in their budgets. A lot of room to adjust. It's the people with $200k of mortgage debt, no other assets, low incomes, no insurances, a $1k ford laser and a modest food budget that struggle when rates go up.

 

Perhaps reread my post
My brother isn't one with any issues.. im saying SOME people could be crippled.

 

You have a safe portfolio to be able to take a 7pc to 8pc increase in interest
11pc to 12pc interest rate (like in 1990) would cause grief to many people

 

Good points. Amazing how those luxuries sneak in and take over the house. I'll be looking at this myself this week.

Sure about that or is this guess-work?
My guess is that these people are experts at sustainability.

 

Whilst I understand the theory behind this unfortunately for people like this it is not the answer. If your hanging in their by 1 rate rise now, I bet even if rates dropped by 2 full bps, they would still be hanging in their by 1 rate rise.

This is not a rate problem, it is a financial literacy problem. These types of people will never get ahead until they learn to control money.

If they fix the rate then they are just 1 car problem from going under or 1 increased school fee. The cycle doesn't end.

 

Nothing new, a lot of people buy based on the current historic low rate and can only afford so with this sort of rate.

I know a few that will be hurt and forced to sell if the rate goes up 1%.

Also at a BBQ early last year another couple was asking you sold your place yet?
No, but I thought you said you going to sell, oh interest drop we don't need to sell now.

Keep living the dream on cheap debt

 

don't need to I reckon a 2-3% rise will cause a lot of people a lot of problem because of the high level of debt.

It is a common theme in boom and bust cycle, doesn't takes much for the highly leverage and gambler to get wipped out and the ripple effect starts.

 

Guess work... my point is, if your allready on the baked beans diet and rates go up real pain will be felt. If your on the caviar diet, then your just trading Krug and Lobster for bin 389 and eye fillet...

 

My point wasn't that your brother has issues (sorry if it read that way) my point was that we shouldn't be thinking about $5k on $1m, and whether that's pre tax post tax blah blah. It's not a concern and if it is, something can be cut from the budget to cover the cost. It's people with lower debt, that will likely struggle more in cases where it's a higher percentage of income.

 

I think we will get to a point where banks stop and rethink that it would be better for them not to raise rates too much and take a shave of their profits (billion dollar profits btw) or risk a blowout in arrears where they will loose as much as the mortgagees. They are too invested in housing not to!

 

So true! If it's not a rate rise it'll be something else. At least rates you can control to a degree.