I once read “Why men don’t listen and why women can’t read road maps.” (yes, this links to the whole book).
There are a number of reasons I found this particular tome frustrating, not least because I’ve never had a problem reading road maps.
I do, on the other hand, have a terrible sense of direction. As a kid, my mother would send my sister with me whenever we walked somewhere new, usually to the bathroom in crowded caravan parks. I thought mum was using me for babysitting purposes – A.Rule is, after all, more than two years younger than me. That’s a big age difference when you’re six.
It wasn’t until I was in my mid-20s mum confessed that it wasn’t uncommon for me to fail to return to our caravan, having got lost in the maze of tents and Jaycos.
She sent my little sister as chaperone, to make sure I came back.
That worked right up until I went missing in the Simpson Desert.
But that’s another story, and as usual I have digressed.
The reason I mention Alan and Barbara Pease’s landmark book – which in many ways superseded the old Mars-Venus series – is that their description on the way men and women operate relates to the finance angle of this house buying palaver.
Alan and Barbara helpfully have a chapter titled “Why men hate advice.”
It says a bloke: “won’t even bother his best friend with a problem unless he thinks the friend may have a better solution.”
(They also wrote: “Uptight men drink alcohol and invade another country. Uptight women eat chocolate and invade shopping centres.” This amused me.
I won’t go into the detail, but essentially it points out women will look around to see what other people have done, and learn from it.
Blokes will sit down and work it out for themselves.
And this is precisely the experience we had working out what sort of loan would suit us.
Without really discussing it in detail, we both had come to the conclusion we wanted a flexible loan from the outset, with the goal to push as much money as we sensibly can in the shortest period of time possible.
Then we could hopefully use our share holdings for a second deposit, and rent out the original house to cover minimum repayments. Or sell it. But you get the gist.
This was how I came to this conclusion:
First, I subscribed to Scott Pape’s Barefoot Investor Blueprint monthly newsletter, which last November had an excellent detailed explanation of mortgages, their types and details.
On the subject of house buying, this is what I took away from Scott’s advice:
- Have a 20 per cent deposit to avoid mortgage insurance
- Only take out a loan on which you could afford repayments if the interest rate was 10 per cent
- Pay it off as quickly as possible
- Do not redraw on one property to afford another
- Look for a mortgage that offers redraw, an offset account and flexible repayments without penalty
- Be wary of any mortgage that offers a credit card, holiday or other “bonuses”.
- And finally, consider using a cash-back mortgage broker like matesrates
Then I used the mortgage and repayments calculators on Scott’s website to figure out how much we could afford to repay without going into technical mortgage stress. (That’s when 35 per cent of your total income is spent on your minimum mortgage repayments).
Finally, I asked my blog and Facebook for advice from people who have already bought houses.
After a bit more homework on First Hombuyers grants, reading some reviews on Mates Rates (which other than Scott were largely negative for first homebuyers as they don’t offer very much customer support. Probably much more effective for seasoned investors) we now have an appointment with a broker recommended to us.
The Swede had a completely different approach:
He worked out the loan value and the likely interest rate, plugged it all into an excel spreadsheet and worked out how much we would be paying in interest each week, how much we’d be paying in principle and how thus how much we could afford and over what time period.
The spreadsheet was impressive, and gave me a far greater depth of understanding of how loans work, and precisely how much interest you’re actually copping each month.
I’d like to think with these two approaches – me figuring out what everyone else in the world had done, and the Swede figuring out what would suit us – we have a far better understanding of mortgages, loans and what will work.
Still feel more lost now than I did in the Simpson Desert. But that’s another story.