‘Interest is a killer’: The real cost of Hobart homes

Property prices are so high that the interest most of us pay over 30 years now is astronomical, says Finder home loans expert Richard Whitten. Picture: Supplied

Homebuyers will pay as much in interest and duty as the sticker price of their home, mortgage cost analysis reveals.

In Hobart, research from comparison site Finder shows that buyers of a typical $715,000 house with a $143,000 (20 per cent) deposit, will pay over $1.337m in real costs over the 30-year life of a home loan.

For some first-time buyers, the costs could be pricier still.

The analysis shows that Hobart buyers using the federal government’s expanded First Home Guarantee — 5 per cent deposit instead of 20 per cent — would be slugged an additional $114,152 over the life of the same $715,000 loan.

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For house buyers with a 20 per cent deposit, just nine out of 66 Hobart suburbs would have a total cost that was less than $1m if paid in full for three decades.

Once considered more affordable areas, Goodwood, Brighton, Mornington and Austins Ferry were all above the $1m-plus mark.

In Hobart’s cheapest suburb, Gagebrook, a $380,250 median priced house with a 20 per cent deposit, will cost $710,964 over a 30-year loan. With a 10 per cent deposit, the real cost climbs to $752,304.

At the top of the table, Battery Point’s total cost exceeded $3m, while a median-priced Sandy Bay house worth $1.35m would cost over $2.58m in total.

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Across the Hobart suburbs, duty costs ranged from $29,666 to $66,060, with half of the analysed suburbs coming in under Tasmania’s $750,000 duty relief price cap.

Finder home loans expert Richard Whitten said the massive long-term costs highlighted the value of using an offset account or making extra loan repayments to get the debt down.

“Interest is a killer,” Mr Whitten said. “Property prices are so high that the interest most of us pay over 30 years now is astronomical.

“If Australians are borrowing $1m to buy a house, then a 7 or 8 per cent interest rate could ruin them.

“If inflation heats up again, rate hikes will be very tricky to pull off politically.”

Finder’s Richard Whitten.

Exceed Property director Mandy Welling said while Hobart’s first home buyers are making educated decisions, she’s confident that few are entertaining the full term of their loan when they consider buying a home.

“There would be some analytical purchasers who take that into consideration, but I’d be very confident they are the exception and not the rule,” Mrs Welling said.

“From our conversations with first-time buyers, they are more focused on breaking free of the rental cycle and hopefully securing something that will earn them capital.”

No.164 Goulburn St, West Hobart is for sale with Peterswald, priced at $725,000-plus.

Mrs Welling said many young buyers have thought about what may go wrong if they struggle with repayments and they chat about ‘backup plans’.

“This might mean taking on a housemate to assist with repayments or possibly moving back in with mum and dad and renting the home out until they can manage the repayments again,” she said.

“They are aware that their marketplace is moving rapidly at the moment and competition is heating up with an influx of interstate investors creeping into the space,” she said.

Mandy Welling at Hobart. Picture: Chris Kidd

Mortgage Choice broker David Thurmond said a $50 a week extra payment on a mortgage adds up to $13,000 over five years, which could have meaningful impacts on long-term interest costs.

“Over the life of the loan, that will save you thousands in interest,” he said.

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While new buyers will “almost certainly” underestimate the long-term costs of homeownership, Mr Witten said the upsides are positive.

He said paying off a loan’s principal builds wealth, and a property’s value will likely grow over time.

“If you can pay the loan off faster, those interest costs drop,” he said.

“Once the loan is paid off you’re in a substantially better position than a renter.

“A debt-free 60-year-old homeowner may have 20 to 40 years of living without rent, whereas a renter of the same age could have decades more rent to pay.”

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