* By Generations columnists * From: News Limited newspapers * November 22, 2010 1:00AM
Paying off a mortgage in the first few years is hard slog
OUR financial experts discuss what predicament is tougher - saving a deposit for a home or paying off a mortgage.
GENERATION Y Justine Davis
FIRSTLY, I would love to be able refute all of Kerrin's comments below because she's verbally wagging her finger at my generation.
However, she's right.
Gen Y, overall, aren't willing to do "whatever it takes" to own their home.
Instead, we want to take advantage of the fantastic opportunities that are available to us to travel, study, work overseas and be more globally minded. Opportunities, I might point out, that weren't available when the retirees were at our stage of life. Studying, working overseas? No way. Back then, women often had to stop working altogether when they married.
I suspect that had the now-retirees been offered the same types of freedom and opportunities as Gen Y have, they would have jumped at it.
Still, most of us do reach a point where we want our own home, so to saving.
Paying off a mortgage in the first few years is definitely the hardest slog of all, because that's the period in time when your repayments take the largest percentage of your salary. That is, the $2800 a month repayment today might represent 30 per cent of your income. In six years that might be 20 per cent of your income. In 10 years, 15 per cent or less. It gets cheaper over time.
However, saving the deposit is certainly a hard slog too, particularly if you're paying rent as well.
But there are two big offers that you can take advantage of: the First Home Owner Grant of $7000 (check out details at www.firsthome.gov.au) and the Government's First Home Saver Account at www.homesaver.treasury.gov.au. Good luck!
Justine Davies is a finance author with a decade of financial planning experience.
GENERATION X Bruce Brammel
WHO likes eggs? I'm generally a scrambled sort of guy. Occasionally, I go for hard boiled. And this question relates to how you boil your eggs.
You want them easy, you do it quickly. You want it a little harder, you just make the process longer.
The easy way to save for a deposit is simply to start saving. Go hard, sacrifice, and use a high-interest account. Once you put your mind/s to it, it usually takes one to two years.
And then there's the hard, daft and risky way using a First Home Saver Account.
Risky? Yes. If you open a FHSA, you can't buy a house for at least four years (under the existing rules).
If you have a deposit after two years, you'll have to watch house prices from the sidelines for another two years, or buy anyway and forfeit your FHSA savings to super. The Government promised to "fix" these accounts, but it hasn't yet.
The first few years of paying off a mortgage are hard work. Any spare cash is usually directed to fixing up or furnishing the new digs.
It eventually gets easier, as a few pay rises kick in, or you decide you've got enough stuff.
Is saving for, or paying, the mortgage the toughest thing to do? I think it's actually just one process.
From the time you make a decision to buy, you're up for about four to seven years of financial strain, until the mortgage is under control, which is typically about five years in.
But gimme my eggs easy, any day.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser.
BABY BOOMER Mark Bouris
IT'S always been tough trying to save for a home deposit. Older baby boomers will remember what it was like trying to put together a home deposit on one income.
They were usually much younger than the first-home buyers today and therefore not as advanced in their careers. They also tended to start their families at a younger age and have more children.
Younger boomers have tended to have two incomes for longer and, in theory, it should have been easier for them to save a deposit. That theory doesn't take into account how much property has grown in excess of inflation over the past 40 years.
The bottom line is that saving a deposit is tough. Our tax system doesn't encourage savings outside superannuation. It seems ridiculous that we are taxed on the interest we receive from money invested from earnings that have been taxed already.
The other thing to consider is that people saving the deposit for their first home are usually also paying rent. All those factors make me lean towards saying that, in many cases, it's tougher saving a deposit than meeting your mortgage commitments.
But in this new banking environment, I'm not so sure. Meeting mortgage payments is much tougher than it used to be when there was more competition in the industry. Banks are determined to maintain their hugely profitable models and with limited competition the consumer is the loser.
We've got to get some competition back into the market or homeowners will continue to struggle. They may be able to meet the interest but paying the mortgage down is becoming increasingly difficult.
Mark Bouris is executive chairman of wealth management and advice firm Yellow Brick Road.
RETIREE Kerrin Falconer
YOUR home is your castle and hopefully most retirees will have the moat well and truly filled, the bridge drawn up and the sentries on guard.
Retirees are mostly a generation which made owning a home an art form.
Those who have secured their castles are experts at both saving in the short term and paying off long-term debt.
Perhaps the generations to the left can learn a thing or two about how it is done. Listen up children. That's you, Justine and Bruce.
Firstly, the deposit. What retirees worked out a long time ago was the need to come up with a decent deposit.
This probably involved some serious savings and sacrifices.
Lunches were taken to work every day. Entertainment was a snag on the barbie with friends and dinner out was strictly reserved for special celebrations.
No one moaned and groaned about how tough it was. They just did it that and setting their sights at an appropriate level for what they could afford.
Then there was the mortgage. Some retirees will recall the interest in the late 1980s when the rates went up to about 17 per cent ... and they think 7.5 per cent is tough!
Once again, retirees did whatever it took to keep those repayments going. Budgeting was not a dirty word and a buffer was built into the family budget to allow for increases in rates.
Lines of credit weren't used for holidays or new cars. In many cases, increases in pay went straight on to the mortgage.
There was a real sense of purpose in getting that mortgage paid off as soon as possible. No one promised that it was going to be a walk in the park, and the toughest part was the thought of not owning your own castle.
