Rent vs Mortgage Analysis
I was contemplating our Rent back in 2020 comparing to what we’re paying now for Mortgage, prior to the Variable Rate % kick. Our landlord was nice and never increased our Rent during our 2.5 years of stay, possibly due to Covid and didn’t want to risk us leaving. Our Rent was 550/week, or about 28.5K annually. Regarding our Current Mortgage, we’re paying about 1K fortnightly, or about 26K. Not too different, which is why we initially wanted to purchase our property. However, if we include STRATA costs, that’s about 1.55K/quarter, or 6.2K annually. Council+Water costs about 550/quarter, or 2.2K annually. Total 26K+6.2K+2.2K=34.5K annually, or 665/weekly, or 1.3K/fortnightly. Since it’s our property, we increase our Equity, as opposed to paying Rent, to someone else, hence would be an expense. When comparing cash flow, would be 550-665= (115)/weekly, or about (6K) annually.
Further insights, I’m sure with the Mortgage Interest Rates increasing rapidly past 1.5 years, our Rent would have increased by about 25% during the 1.5 years. So, if we do 550 x 25% = +137/week, or 688/weekly, or 36K/annually. That would be about 36K-28.5K= +7.5K/annually. Using the Home Mortgage Calculator, using the current rate of 6.54 % Mortgage Interest Rate, 530K Remaining in Principal, and nothing in the Offset Acct, our estimated mortgage repayment would be 1.58K/fortnightly, or 3.4K/monthly, or 41.2K/annually. If we compare our new rent (if we still rented), would have been 41.2K-36K=+5.2K/annually. That’s not that bad. However, let’s look at it more in depth, separating Principal and Interest. Interest would be 32K/annually, so 41.2K-32K=9.2K toward Principal. Using this calculation, would take us about 25 years to pay off our Mortgage, totalling to 1.1M in total repayments, for a Loan Amount of 530K, assuming nothing in our Offset Acct.
We’re savvy FI Investors, so I’ll use the calculator that I’ve created utilizing the Offset Acct, as well as making additional contributions toward our mortgage and created a matrix table analysing different offset and contribution amounts.
Using the Offset 150K, Add Contr 15K for 10 Years, would give us the most optimal results. Repay Years: 13, Total Interest Paid: 162.9K, Total Savings: (460K), Int. Savings of (74%). If we use the Offset of 175K, our Var % would be under 5%, and 28K vs 34K, so Offset 150K would be the most optimal.
EK Home Mort Repay Offset (Contr Analysis)(v4)(6.54%)(175K)
