In The High Range

Sydney Morning Herald

Saturday September 22, 2007

Alex Tibbitts

It must be nerve-racking totake out an extra big loan, but for one bloke who hasbeen there, it's all relative. Alex Tibbitts reports.

GREG COOK is one of a rare group of Sydneysiders who took out a $1 million loan on his house and survived to tell the story.

"The first few years I had to work pretty hard to hold onto [the house]," Cook says.

"Anyone is nervous with a million dollar's worth of debt unless they're earning a really big income. It's a lifestyle choice and you've got to work hard."

Cook's mortgage, which is with a bank, did not start out that big, but he was made redundant shortly after buying his Avalon home and started a business.

"The job market wasn't really good but I had some money saved and I had some money from my father's estate," he says.

Cook is more relaxed than most about a seven-figure debt because he is financially literate and works in the banking sector as a mortgage broker.

"Most people who are borrowing at that sort of level have reasonable equity. They're more established, generally older and used to having that level of debt.

"It never takes away the stress of owing $1 million. I remember when I owed $100,000 on a mortgage years back and I thought that was big mortgage. It's what you're used to."

Based on his experience, the 51-year-old single father of two boys - 10 and 12 - says that borrowers should be cautious and plan for the unexpected.

"It doesn't matter how big your debt is, whether it's $1 million or $100,000, you never know what's around the corner," Cook says. "You've got to have income-protection [insurance]. You've got to have some risk insurances in case you have an accident. Most people don't. Most people will insure the contents of their house before they insure their own life or their own income."

There are no figures to show how many $1 million mortgages have been granted in Sydney, although the chief executive of the Australian Bankers Association, David Bell, believes that the "market is very small for this loan amount".

"Based on official statistics we know that the average new loan is about $250,000. For NSW it is $267,000, and for Tasmania it is $177,000. If we were to look at all loans [even the old ones] the average loan size on the books of banks would be significantly smaller again."

Cook, who set up his own brokerage, Insight Home Loans in Belrose, after leaving Mortgage Choice, sits on the board of Finance Brokers Association of Australia.

He recommends insuring against interest-rate rises by "fixing" part of the mortgage - taking part of the loan at a fixed interest rate. Understanding lending options and arrangements is important, he says.

"People get nervous when rates go up and down because they've got a variable rate. Fixing rates to secure a certain amount of repayment each month isn't about just trying to pick the market; it's also about maintaining some equilibrium in your household budget. Otherwise you can go up and down a like a yo-yo."

Cook says part of your mortgage can be fixed from three to 10 years, although most are fixed for three, and then the loan and the lender should be reviewed. He says the mortgage can be fixed again and the variation costs about $300.

Australians have been hesitant to fix interest rates on their mortgages but three-quarters of the loans Cook brokers are now partly fixed.

Cook also recommends a 100 per cent offset facility for people with large incomes.

"The savings account is linked to the variable portion of the mortgage," Cook says. "If any money is sitting in their savings account, while they're not earning any interest on it, they're reducing their interest costs each month. If they've got an average balance of $7000 and they owe $107,000 they only pay interest on $100,000."

While defaults are increasing, Cook points the figure at easy credit.

"It's easier to get a credit card after you've got a mortgage than before. I saw a guy the other week who had a mortgage and then he went out and bought a car for 25 grand and found it was a bit over the top and was trying to refinance the car loan into his house."

© 2007 Sydney Morning Herald

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