Property purchase vs debt repayment

There is no doubt that buying a home can be a very emotional experience. People often consider the home location, its finishes, distance to family and friends and even the property facade. There is a deep seeded need in most of us to know that we own our own home, even though in more often than not, most of that ownership is with our bank.

Nonetheless buying a property is not a decision that we should be taking lightly, especially if we are already carrying significant other debts.

Time and time again we hear from debt-laden individuals whose only concern is being able to buy a property. That concern frquently overrides financial sensibility and the understanding of the urgency to to repay expensive unsecured debts.

There are times when purchasing a property can come ahead of debt repayment. That would make sense in the rare circumstances where you are able to buy a “steal” that is expected to offer you profit/equity as soon as you settle and continue to make money for you going forward. One example of this is purchasing the last unit in a development block which the developer is happy to sell at a significant discount to qualify for construction finance. There are times when a distressed property purchase can help the buyer make tens and even hundreds of thousands of dollars. A decision to make such a purchase is reasonable even in circumstances where the buyer is carrying other debts (providing mortgage affordability has been confirmed).

A more frequent circumstance is consumers with maxed our credit cards, car loans, tax debts and the like, are hoping to buy that dream house of their own. It needs to be a property that will impress their family and friends but little thought is given to the financial stresses that these buyers would be facing from an even small increase in interest rates.

In most cases we suggest that consumers dedicate their full resources to repaying unsecured debt obligations before considering a property purchase. It simply does not make financial sense to saddle themselves with new debts before paying off existing ones. Furthermore existence of outstanding credit card and personal loan balances will reduce the individuals borrowing capacity therefore affecting the calibre and quality of home that they would be able to afford.

Every effort needs to be directed to repaying expensive unsecured debts before embarking on a property purchase.

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