Is having 2 mortgages serviceable?

[mickeyyou]

My partner and I are in our 20s, both working full time and do not have any children and do not plan to have any within the next 5 years.

We currently have an IP ($420k loan, interest only) which is negatively geared and are thinking of buying our PPOR within the next year (we are currently living at home with our parents). We plan on having a 20% deposit on a $400k property (or less), therefore only borrowing a maximum amount of $320k.

There has just been so much negativity in the media about mortgages and how people are struggling to meet their repayments (on ONE mortgage) etc etc that it has made me question whether having 2 mortgages is even possible?

I understand that a lot of people on SS have whole portfolios of properties and therefore mortgages, but the way those mortgages are treated and serviced would probably differ to when a PPOR comes into the picture?

Any advice is greatly appreciated.

 

[hobo-jo]

it has made me question whether having 2 mortgages is even possible?

Would suggest that no one is in a better position than yourselves to judge whether you can afford the second mortgage... however if you wanted some educated guesses as to whether you can afford it then we would need your incomes at a minimum. For example, if you're both earning $150k per annum then I doubt the second mortgage will be an issue

 

[mickeyyou]

we would need your incomes at a minimum

We're on $115k combined before tax. This also includes our rental income.

We're willing to do it tough for a year or two (if we do buy) and sacrifice on things such as holidays and cut back on dining out. But we definitely don't want to resort to eating 2 minute noodles and struggle through life, just to pay the mortgage.

 

[Propertunity]

There has just been so much negativity in the media about mortgages and how people are struggling to meet their repayments (on ONE mortgage) etc etc that it has made me question whether having 2 mortgages is even possible?

These are 2 different and unrelated things. Negativity in the media is designed to sell newspapers but this has nothing to do with whether or not you can afford a PPOR mortgage. That, as has already been said will depend on your incomes and present commitments - i.e. what the banks would call your 'serviceability'.

 

[Corey Batt]

We're willing to do it tough for a year or two (if we do buy) and sacrifice on things such as holidays and cut back on dining out. But we definitely don't want to resort to eating 2 minute noodles and struggle through life, just to pay the mortgage.

What are holidays?

I'm all about looking at the positives - Not eating out gives you the great opportunity to learn how to become very good at cooking. Which in turn reduces wanting to go eat out other than the 'experience'.

Not that I don't like going out to eat.

Back to serviceability however, it would be best to speak to a mortgage broker who could assist you in your situation, anything on here is going to be vague and not necessarily a true reflection of your capabilities and limitations. A broker will be able to ascertain what size loan you can borrow up to, what repayments would look like, different scenarios at varied interest rates, situations etc.

 

[Indifference]

We're on $115k combined before tax. This also includes our rental income.

We're willing to do it tough for a year or two (if we do buy) and sacrifice on things such as holidays and cut back on dining out. But we definitely don't want to resort to eating 2 minute noodles and struggle through life, just to pay the mortgage.

Firstly, only YOU can really decide if it is affordable or not.

That being said, if I were in such a financial position, I would seriously question my motivations to buy a PPOR and my ability to service a reasonably large non-deductible loan.

Have you accounted for all the "extra" expenses of a PPOR apart from interest, that you will have to pay for 100% with post-tax income?

Have you considered another IP instead?

Also, what is your current leverage on the existing IP? I ask because, the goal is to have as much equity as possible in your PPOR to reduce non-deductible debt....

I have had large PPOR mortgages before and I will not do it again. Many will probably argue a contrarian view, however I would rather rent or live in a more humble PPOR.... at least until I can really afford to upgrade. Serviceability and affordability are 2 completely different things, at least to me.

 

[kathryn d]

Are you paying your parents rent..on top of your personal expenses, such as groceries?

If you are not paying rent, and something happened ...that you HAD to rent elsewhere, have you the money in your budget for this?

 

[Doovalacky]

We currently have an IP ($420k loan, interest only) which is negatively geared

You have interest only loan and its still negatively geared? ouch...

All depends on your ability to control your spending. I would be looking at something in the lower end of the market personally.

 

[investor2009]

In short: 2 mortgages is a smart thing to do. Then, when you feel more comfortable, get some more. Then, retire young and enjoy life.

Or: Work hard all your life paying off your mortgage, retire poor and sell to release cash and live in a caravan park.

1 neg geared IO property would cost maybe $5000p/a after tax and a $350k mortgage (I'd switch to IO if it feels better) would cost around $15,000 a year each. That only leaves you $70k to play with. On second thoughs, a bit tight.. (jokes) too easy

 

[RumpledElf]

What are holidays?

I'm all about looking at the positives - Not eating out gives you the great opportunity to learn how to become very good at cooking. Which in turn reduces wanting to go eat out other than the 'experience'.

Hah, we never go on holidays. Don't want to. Can't really think of anywhere we'd like to go, and every time we stay somewhere that isn't home we never get any sleep and turn into snappy, grumpy horrible people and I wouldn't want to actually *pay* for that.

And you're not wrong about the cooking thing. We rarely eat out, but when we do we tend to get very disappointed at the quality of the food compared to home. Granted we're not eating out at 5 star restaurants (couldn't afford to anyway) but still, it takes the shine off. So these days, if we're eating out - its KFC. Something salty and greasy we don't make at home so there's no benchmark.

Also watch it when you buy a new PPoR, it tends to provoke a large spending spree on furniture and stuff ...

 

[weg]

Hah, we never go on holidays. Don't want to. Can't really think of anywhere we'd like to go, and every time we stay somewhere that isn't home we never get any sleep and turn into snappy, grumpy horrible people and I wouldn't want to actually *pay* for that.

And you're not wrong about the cooking thing. We rarely eat out, but when we do we tend to get very disappointed at the quality of the food compared to home. Granted we're not eating out at 5 star restaurants (couldn't afford to anyway) but still, it takes the shine off. So these days, if we're eating out - its KFC. Something salty and greasy we don't make at home so there's no benchmark.

Also watch it when you buy a new PPoR, it tends to provoke a large spending spree on furniture and stuff ...

Agree with you and CJ. I'm real fussy on where I go to eat because my cooking is often much better too .

I advise to learn how to cook, create a nice courtyard or meals area to eat, and perhaps a good wine cellar, and you'll never feel deprived. Going out will be when others invite you to socialize.

RE, we've done a few holidays interstate and one overseas with the kids, but the ones the kids keep raving about (and have been the easiest for us) are/were at West Beach Cabin Park .

The place is CHEAP, has 2 pools, a bouncy castle, peddle cars, tennis and volleyball courts, an entertainment centre with 8-ball, air hockey, pinball machines, etc. and it's CHEAP... ooops, said that already.

We've gone with friends, or invited them to visit, so the kids have lots of friends with them.

You can do so much cheaply and not go without.

 

[gottabespotless]

We're on $115k combined before tax. This also includes our rental income.

We're willing to do it tough for a year or two (if we do buy) and sacrifice on things such as holidays and cut back on dining out. But we definitely don't want to resort to eating 2 minute noodles and struggle through life, just to pay the mortgage.

As a previous poster already stated, only you know if you could really afford it or not. Also, the advice to see a broker is sound.

Personally, going by the figures you give, I think it would be tough. I'm also someone who believes that real estate in this country is not going to go up much in the next few years so wouldn't be rushing out buying just yet.

There are quite a few questions that you really need to be brutally honest with yourself in answering. Have you ever lived 'out of home' and paid the usual bills, eg. electricity, phone, water, groceries, etc, as well as rent? The fact that you are both only in your 20's, working full-time and yet to start a family is also an issue. It can be easy to pay off a mortgage (or two) on two full-time incomes whilst still living with Mum and Dad and when you don't have any dependents of the 'small' variety, and although you say that children are not a consideration yet, what about when they are? Will any maternity leave pay cover your expenses? Will you be prepared to return to work full time again? Have you considered the cost of child-care and how much that will take out of your net pay? There's also the unknown emotional side - would you be prepared to have someone else look after your child/ren on a full-time basis - many Mums don't like the idea of this once a baby is born and only wish to go back to work part-time - could you afford it? Don't ever underestimate the cost of kids!

 

[RumpledElf]

RE, we've done a few holidays interstate and one overseas with the kids, but the ones the kids keep raving about (and have been the easiest for us) are/were at West Beach Cabin Park .

We have the noxious brand of children (2 out of 3 of them anyway) that Do Not Sleep in strange places. Eg, the first night in our new house the baby woke up about 12 times that night screaming and refused to sleep anywhere but ON me, which is about how he behaves when we stay anywhere that isn't home. Toddler refuses to poop anywhere other than home, which is fun too. Meanwhile the eldest kid goes on holidays all the time with the grandparents and has never had an issue of any kind with visiting other places since she was about 5 minutes old.

Talk to me again in a few years about this one ... you really can't pre-order the kind of kids you want, otherwise I would take three of the sort that actually SLEEP.

 

[weg]

You've got to go with whatever works for a peaceful life.

One of the families we've gone to West Beach with (6 families, 3 cabins) every year for the last 3, has had to share with us because their boy has got used to the arrangement of being with my son and I.

He's always unsettled for the first 24 hrs of a holiday but eventually settles and has a good time.

I think the toilet thing is a lot more common than you think too - infact one of mine was a bit like that, and I've had others tell me the same thing.

Kids are such funny creatures. Give it time and things should improve.

Geez, getting way OT now.

 

[rugrat]

I am a bit confused by why people think it would be tough for you with the figures you have shared??? Have I missed something???

Our household income is approx $125k (including the rental income from our IP), we have our IP (loan approx $420k), and our PPOR (loan approx $300k). We also have 3 (soon to be 4) kids. For us it is a bit tight at the moment, but that is more due to the extra expenses involved with having kids (school fees, nappies, food, etc). Even so, we still manage to eat out regularly (did so last night), 'occaisionally' go on holidays (going away at christmas this year), etc.

Only YOU know what your expenses are. Figure out your budget, figure out how much repayments would be, and then do the math. =Being able to afford something is about numbers, not what the media (or anyone else) tells you is possible or affordable. Sometimes you may be able to cut things that aren't important to you out of your budget, other times you will decide that that item is too important to you, so you prioritise it over a new PPOR. Nothing wrong with this - but YOUR priorities are going to be individual to you. No-one else can tell you something is or isn't 'affordable'. (particularly based on the very limited information provided).

 

[rugrat]

thought I would also add that doing something now BEFORE you have kids is the best idea IMHO. It becomes alot harder later...

 

[RumpledElf]

Geez, getting way OT now.

Consider it a warning to the OP, along with Rugrat above, to get all the financial stuff out of the way before you have a houseful of babies keeping you awake at night and affecting your servicablility

 

[mickeyyou]

Thanks for the great advice everyone, it's given me a lot to think about!

Well we definitely plan to get that PPOR and have paid off a decent amount of it before we decide to have any kids. We all know how expensive and time consuming they can be, not to mention the possibility of a reduced income.

Rugrat - you seem to have similiar finances to us (minus the kids) and its really inspiring to hear that your doing fine.

Given the property market at the moment, we'll probably wait another year until we start thinking about buying. In the meantime, we'll try to save as much of a deposit as we can to reduce the amount of non-deductible interest on the PPOR.