Ask Paul: Should we borrow more to buy a bigger house?

Hi Paul,

Your columns are full of wise advice that we cannot easily find elsewhere. My husband and I feel we did not make the right decision with our current home and we didn't know savvy people. 

We bought our property in south-west Brisbane 13 years ago for $328,000. We had a child in 2015, I'm in my 40s and my husband is 52. We put about half our earnings toward the mortgage consistently and paid it off in 2021. 

By no means are we high income earners (I'm part time at present, too) and our combined income before tax is around $112,000 a year. We are organised with money but are also low-risk people.

I come from a South American country with lots of instability and we are conservative, in general, so we are looking forward to getting rid of our mortgage. 

We've been saving (but not as much as we put toward the mortgage, due to cost of living and maybe spending a bit more) and we have around $50,000.

Our house is small and I'd like to move to a better suburb. This means we'll need to look at a property of about $900,000. We may sell ours for about $600,000. 

Are we too old to buy a house? We are scared, but also it's been good not to owe anything. However, saving is not such a great investment. Any advice? - Jo

That is very kind of you, Jo. The only problem with whatever wisdom we all have is that it tends to come with age, and while my wife and adult kids will chuckle at the thought that I have any wisdom at all, over many decades of answering people's questions about money you do learn a few things.

So, let's have a crack at your situation. Firstly, you are not too old to buy a new home.

If you sell your current home for around $600,000 and then buy a house for around $900,000 obviously there is a $300,000 gap to be filled by a mortgage, with your savings paying for stamp duty and costs.

Success with money is not about what you earn, it is about what you spend. The difference here is your savings.

You have given me very clear evidence that you are great savers. A $300,000 loan would mean minimum repayments of about $1800 a month, some $21,500 a year.

I appreciate you are working part-time, so look at your budget and see if you can handle this amount, with a good safety margin. I expect that, with your ability to manage money, you will be able to save more than this and pay off the mortgage in a decade or so.

So, do your numbers, talk to a few lenders or a mortgage broker and see what your safe borrowing capacity is.

From what you have told me, though, with such a huge deposit after the sale of your home and your saving history, I do not think you are taking a large risk going into debt to buy a bigger home.

Being conservative is not a bad thing.

I know I am when it comes to money.

But with Australia's growing population, buying a bigger home you enjoy and getting it paid off will give you decades of pleasure. A good investment.

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