Browse Forums Home Finance 1 Oct 02, 2014 2:44 pm We own our own home valued at approx 800k with no mortgage. We have bought land and owe around 800k. We would like to build for a cost of around 500k (additional construction loan). We have approx 40K in additional savings. Our combined income before tax is approx 200K. Would you build with the figures above? We would like to live in our current house and then sell on completion of the build, so we will be carrying a big uncomfortable debt during the process, but very short term. This will avoid us having to pay rental money, and move twice. Your advice would be much appreciated. Re: Would you build with these finances? 2Oct 02, 2014 2:51 pm If you can service the loan during the construction period (plus a sale period after) and are comfortable with the LMI (you didn't say what the land is worth) then sure, go for it. Re: Would you build with these finances? 3Oct 02, 2014 2:55 pm Jenpanks We own our own home valued at approx 800k with no mortgage. We have bought land and owe around 800k. We would like to build for a cost of around 500k (additional construction loan). We have approx 40K in additional savings. Our combined income before tax is approx 200K. Would you build with the figures above? We would like to live in our current house and then sell on completion of the build, so we will be carrying a big uncomfortable debt during the process, but very short term. This will avoid us having to pay rental money, and move twice. Your advice would be much appreciated. You will be carrying a $1.3m debt for approx 12 months to be on safe side... thats $5287 per month interest only... or $1321 pr week @ 4.88% interest only... SURELY you can rent for cheaper than that! If you sell your place now for 800k you will then only need to borrow the 500k construction amount, that would be $2034 per month or $508 a week... as long as you rent somewhere under $800 a week you're better off... Re: Would you build with these finances? 4Oct 02, 2014 3:02 pm Thanks for the very quick replies! I didn't think it would be the full 1.3 for the 12 months, since we would be paying for the build in stages. So the 1.3 would be towards the end of the build and hopefully for a lot less than 12 months. But yes, something to consider... Re: Would you build with these finances? 5Oct 02, 2014 3:09 pm Mr Bee is correct. But for simplicity. You 800K house is costing you 40K a year in unrealised capital. If you can rent for 400 per week you will be saving $400 a week in addiotnal to council rates, water rates and other service charges. If you have kids then I agree it may be best to stay put especially if you house can increase in value in that 12 months anyway. Re: Would you build with these finances? 6Oct 02, 2014 3:20 pm Yes, have kids! Maybe I should break down my question into two parts, given I have confused the question a little! Part 1: Would you go ahead with the build given our finances? Part 2: Should we stay in or sell our house before starting the build? Another note is that we are not starting the build until next year, so hopefully have another 12 months to save a bit more... Re: Would you build with these finances? 7Oct 02, 2014 3:45 pm In that case: Part 1: Yes providing you are reasonably secure in your jobs and otherwise in a stable position (healthy, not thinking about making any radical life changes etc). Part 2: That depends on a couple of things a) how risk averse are you? I was in exactly this position 12 months ago and chose to sell 1st largely because then I knew exactly how much money I would have to play with and I couldn't be stuck servicing 2 mortgages) b) how inconvenient will it be to move? (in my case it was/is very inconvenient to move twice but we are putting up with it for the financial reasons). Re: Would you build with these finances? 8Oct 05, 2014 7:40 pm Nobody else but you would need to find answer to the following question : Will the price of my current dwelling go up ir down in the time new house is being built? Also, there is always a cost of money, whichever way look - cost of not earning interest or cost of paying interest. If you have no debt then you should be earning interst on your savings. Others have pointed out to you the interest calculations, you will need to deduct the interest you will save by living in your house from the interest you will pay on mortgage. 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