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Rent Versus Buy: Similar Costs Over 30 Years?

The debate to rent or to buy has heated up following a new investigation by one of Australia’s biggest comparison websites finder.com.au (www.finder.com.au/home-loans), which found Australians are likely to pay almost the same cost to buy a home compared to renting for the next 30 years.

finder.com.au analysed RP Data Rismark Daily Home Value Index, and found the total cost for the national median house price with a 30-year loan term is over $1.2 million.

The national median house price is $565,000. For a loan amount of $519,839 (using a 10 percent deposit) borrowers will pay $3,485 in monthly repayments, including Lenders Mortgage Insurance (LMI) of $11,339 capitalised into the loan (projected average interest rate of 7 percent based on the past 10 years historical average, for a 30-year loan term).

Even saving a 20 percent deposit will still cost over $1.08 million for the median national house price over 30 years.

Compared to renting, the national median weekly rent for a house is currently $424, which equates to about $998,830 over 30 years (adding current inflation of 2.7 percent p.a.).

Money Expert from finder.com.au Michelle Hutchison said it can be a tough decision to choose between renting and buying a home.

Pros and cons to rentng and buying

“The question to stay renting or to enter the property market is a constant struggle for many Australians because of property prices, saving for a deposit and uncertainty of interest rates. But if you compare the likely cost of rent for the next 30 years, it’s worth considering buying a home.

“In fact, we found that it’s more affordable to maintain a mortgage now than it was three years ago, because of the low interest rate environment.

“The important thing to remember is that when the loan term ends and you’ve paid off your home, that property is yours to keep and likely to be worth more, whereas if you’re renting that money has paid for someone else’s investment.”

State comparison of home loan costs

  • Based on the median house price, six of the eight capital cities are looking to pay over $1 million in total home loan repayments. Sydney will be paying the most with over $1.6 million in total payments followed by Melbourne at $1.3 million.
  • For borrowers looking for units, prices for Sydney and Melbourne will also cost over $1 million.
  • Hobart borrowers will pay the least for a house, paying just under $770,000 in total cost with a 10% deposit.

“The cost of buying a home is becoming an even bigger challenge for Australians, where house payments could potentially be as high as $1.6 million over a loan term for a median Sydney house,” said Mrs Hutchison.

“But don’t be intimidated by high property prices because it’s a great time to enter the market while interest rates are low, as long as you’ve factored in rising costs down the track. And if you can afford to get in the property market it’s important to compare home loans and take advantage of competitive rates, which can save you thousands of dollars.

“For instance, even finding a lower rate of 0.25 percentage points is worth about $80 per month for a $500,000 loan and potentially about $29,000 over 30 years (based on the difference between 6 percent and 5.75 percent).”

Total cost of median house with 10% deposit by state

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