Ask Paul: How can I overcome my fear of debt and buy a home?


Paul: I'm a 45-year-old with no assets, not even a car. I have $40,000 in super and $300,000 in short-term savings.

One reason I'm scared about debt is that my professional work takes me around Australia. The work is casual and I can't get income protection. Fortunately, I have no debts or dependents.

Surprisingly, because I've been in the same job for a while banks say they will lend me $300,000. To stay safe I'm wondering how much I should use to buy a residence and/or shares?

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Paul: Hang on, Paul, you have really serious assets; in fact, $340,000. I get what you say about debt: getting ill or injured outside work without income protection insurance means you are correct to be concerned.

But I really would like you to have a place to call home. I am not sure where that is but if you were able to buy a place for, say, $600,000, including stamp duty and costs, you would still have a nice buffer of $40,000 in case of a health issue. Equally, if you saw NSW as home, the new state government laws could see you paying no stamp duty on a home of this value.

The $300,000 mortgage would have interest payable at around 4%. Don't let your bank charge more than that. UBank, owned by NAB, is currently at about 3.7%, and I see plenty of others offering rates below 4%, so shop around.

But at 4% you would owe $12,000 a year in interest, which is quite manageable. As you work away from home, you may be able to let your property for short terms and earn a return close to this.

So I appreciate your caution. But time moves on and I would like you to own a home, and pay it off, during your working life.


Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
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