The Secret edges Don’t Want You To Know
edges in Australia are nevertheless lending money to people at a breakneck speed. Unlike in the USA our character bubble is nevertheless inflated.
We were posed a question from Sharon in NSW to prove my point.
Question: I am 24 and earn $34,000. My boyfriend is 22 and earns $36,000. The bank told us we could borrow $490,000 to buy a house. Should we go to the limit? We want to get married and have kids in a few years. SHARON, Bidwill, NSW.
There are two points that I want to bring up about this question.
Point Number One:
How can any bank in Australia lend out up to $490,000 to a associate earning a total of $70,000 pre tax and $61,152 after tax? In my mind this is criminal. It is plain criminal. It is irresponsible lending.
Let’s say Sharon takes out the complete $490,000 over 25 years at a starting variable rate of 5.33% (This happens to be my current rate). Each week they would have a repayment of $682.40 or a yearly total of $35,484.80.
This is 58.02% of their total after tax salary. This is well beyond what I suggest at 33% maximum of your total after tax salary. This gives the associate $25,667.20 a year to live on or $493.60 a week.
This seems like a reasonable amount to live on except if Sharon gets pregnant (as she said she was looking forward to doing in the future). Now they will either drop to her boyfriend’s wage alone or have to pay additional for child care. But let’s say they have a nice relative that will look after the baby while both are at work; this doesn’t matter because either way their NON mortgage expenses will go up from the cost of the child. This would eat into their $25,667.20.
If they dropped down to his wage alone, they would be $4134 down/underwater each year. This is 113.16% of his total wage going to pay the mortgage payments each year. This is before they paid one cent in food, electricity, gas, telephone, car expenses etc.
already a 15-year-old understands that you can’t use more than you earn day in day out before you have no money left.
However this is at the low interest rate of 5.33%. “What would Sharon do if interest rates rose by 4%”?
Now their home loan would have an interest rate of 9.33%. Now their weekly payment is $973.89. This is 82.81% of their total wage. This leaves them with $10,510 or $202.11 a week to live on.
Let me talk from experience. Living on $202.11 is nearly impossible for two people. Especially two people both working. There would be no room to move on anything at all. If your TV blows up, forget replacing it. If the hot water system breaks down, get used to cold showers. Forget going out to a restaurant, already once a month, if not for the whole year!
So Sharon would be walking a tightrope. No ifs, buts or maybes.
Plus I was paying 9.15% interest rates only 20 months ago. So to suggest that interest rates won’t go up again as quickly as they came down is being hopeful.
Point Number Two:
Never ask a bank what you can provide. This is like asking the barber if you need a haircut. The barber will always say yes. The bank will always lend you more than you should have.
You see the bank knows that if interest rates go up only 4%, this associate will be living on $10,000 a year. However, they don’t care. As long as they get their payment each month they are happy.
They will let their customers eat two minute noodles each night just to survive, as long as they are getting their money.
Take this advice away from this article. Just because a big organisation (for example, Commonwealth Bank, ANZ, American Express, Visa, NAB etc.) offers you money, don’t take it as a compliment that these big companies are willing to lend you money. It does not average you can provide it!
You need to do your figures and come up with your own conclusions.
edges are complete of salespeople (yes including tellers). I had a friend that worked for a Savings and Loans credit union as a teller. She was taught how to sell people into credit cards, personal loans, car loans and already home loans.
One of the things she was told was to look at what the customer was carrying. For example, if the customer came to the counter with a travel magazine, she was told to strike up a conversation about holidays. Then she was told to move the conversation to personal loans that could cover the cost of the holiday. In her sales training they did role plays exploring the above example.
edges just like all businesses make money on sales. One of their biggest products is lending you money. The more money you owe them, the more they make. As long as you keep making the payments they get their profits.
So do you really think they care if you are struggling month to month just to put food on the table?