FINANCING THE HOME

Evening Star, Issue 23725, 5 November 1940, Page 3

FINANCING THE HOME

IMPORTANT ITEM IN LIFE DIFFERING METHODS OF PURCHASE For mpst people the purchase of a home to live in represents the largest single item of expenditure which they are called upon to make in their lifetime. Unless a person is very fortunately placed financially the amount of money needed to acquire the title deeds of even a modest suburban property is relatively so large that the average man is forced to tivail himself of the several methods existing" to help him purchase his own home. There are, of course, advantages attaching to renting, for many people in these days of rapid change are unable to “ stay put ” in one. place for any considerable length of time, and for them purchase of a residential property is perhaps not the wisest course. But for those whose work or interests binds them down to a fixed locality there is no question of the advantages accruing from owning one’s own home. Desire to own one’s own home seems to bo a deeply ingrained objective of a large majority of people of British stock (states the Melbourne ‘Argus’). “An Englishman’s home is his. castle ” is no meaningless saying. It denotes the real pride which

Australians and New ZealandeTs take in acquiring' the properties in ond around ivhich they spend most of their lives. BORROWING ON MORTGAGE, There are roughly two ways by which a property may be acquired if the prospective purchaser has not the means to maka a straight-out cash purchase. These are borrowing of money on straight mortgage for a limited period of years, and the method, more suited to persons of more modest means, by which periodical payments made by the borrower on account of interest and principal have the effect of ultimately extinguishing the loan, thus leaving the borrower in proud possession of a home completely unencumbered with a financial liability. Most loans made on fanning properties, and indeed many loans affecting city and suburban real estate, are made on the basis of a short-term mortgage—generally for a period of three or live years. The rate of interest is around 5 per cent, for this type of security at, present. Payments are made to the lender by the borrower in respect of interest only, and when the term of the mortgage expires the borrower lias either to obtain an extension of the mortgage (if the mortgagee is agreeable) or seek fresh finance elsewhere.' But building societies, life assurance companies, and other bodies are able to lend money to homesedkers on such terms that the currency of the loan is spread over a relatively long period—in some cases up to 30 years—by which time payments on account of interest and principal have completely extinguished the original debt. This is undoubtedly the best method of acquiring a property for those who are

permanently settled in one locality and who have a regular income, however small it may be, enabling them to make periodical payments on account of interest and reduction of the principal sum. In many ci*6es the periodical payment does not exceed what would have to bo paid for a similar property in rent. This means, of course, that the occupier of the property enjoys the tremendous advantage over his rent-paying neighbour that as every week passes he approcches closer to the day when he will really own his own home. INSURANCE PROPOSITIONS. In recent years life assurance has very successfully been coupled with selfextinguishing or “ table " mortgages. Most of the leading life assurance companies combine with the financing of home. purchase the issue of an endowment assurance policy. This means that should the breadwinner of the family die at any time during the currency of the mortgage, the proceeds of the collateral security of the life policy will completely extinguish the debt existing on the property. and the widow and/or dependents will "thus be ’eft with a home wholly paid for. The incalculable benefit of such an asset as a rent-free place to live in cannot be overestimated, especially in these uncertain times.

If, in this particular type of loan-cum-assurance contract, the borrower lives throughout the term of the mortgage, his payments to the life office will have been sufficient to extinguish the debt, and give, in addition, any bonuses which might bo due under the policy. In some cases, ac-

cording to the terms of the contract, further benefits are paid to the dependents cf a borrower if death is caused by accident. Thus has the technique of home purchase been developed, Kven with a comparatively small sum to be paid by way of deposit—as little as £l5O in some cases—persons with regular incomes are able over a period of years to purchase their own homes. At the same time the protective advantage of life assurance ensures that should anyhing untoward occur to the breadwinner there will be no deviation from the original intention of the contract, and a man can set his mind at rest in the knowledge that his dependents will at least have shelter assured to them, come what may.