The mortgage rates in Australia are at an all time low. In fact, according to an analysis by Australian Macquarie analysts, Australian banks have been offering discounts upto 1.4% on their standard variable mortgage rates, making home loans much more affordable for property buyers.
And with RBA’s recent move to keep the cash rate low at 1.50%, the time is certainly ripe to buy your first home, if you still haven’t.
But wait – don’t just borrow because you can – do you know how much you can afford to borrow? And more importantly, afford to repay?
Experts at HashChing can help you assess your borrowing capacity. What’s better is this handy calculator that will help you work out how much you should borrow by simply typing in your income, expenses and existing debts.
Knowing your borrowing capacity can help in many ways. Here’s how:
1. Save time – You may spend days scouting for the perfect only to realise you cannot afford to borrow enough to buy it. Avoid disappointment by calculating your borrowing capacity beforehand and narrow down your search to properties that fall within the bracket. Having a home loan pre-approval before you go for house hunting is great.
2. Budget better – If you think you need to borrow more, you can plan a more stringent budget by using our Budget Calculator and see the magic of small savings bundle up. Saving small for few months can add up to a big deposit that can substantially reduce your monthly repayments and interest.
Top tip – It is great to know how much you can borrow, but even better to work out whether you can service the loan or not. While shopping around will get you the best loan deals (compare weekly home loan deals), feeding the loan information in this Repayment Calculator can tell you how much you need to pay monthly to service the loan.
Ideally, it should sum up to your current rental and some savings. Anything more, and you may need to rework the budget.
What factors affect my borrowing capacity?
While different lenders take into account different criteria such as your marital status, income and number of dependants to calculate how much they think you can afford to borrow, do not jump blindly borrow the exact amount lenders think you can borrow.
Only you are aware whether you are planning a maternity or paternity leave, a vacation, whether your income is going to increase or any other change in your personal situation that can affect your financial condition. All these factors are crucial to decide what you can afford to borrow or not.
Keep the following in mind while calculating your borrowing capacity:
1.What is your current income?
2. What are your current liabilities? Do you have an unpaid car loan?
3. Credit cards affect your borrowing capacity.
4. Are you planning a family in the near future?
5. Location of the property – How much will you spend travelling to the office? In case you use public transportation, is your chosen suburb well connected? The location will also affect the cost of the property.
Grab your free property report to know your suburb inside out – from recent sales, auctions, latest trends to suburb statistics – it’s all in there!
Top Tip – Choose family friendly locations for your property. Proximity to public transport, schools, malls and other conveniences mean savings, capital growth and better rental yield in the future.
Financing your first home or refinancing your existing home can be difficult, unless you are guided right. HashChing helps potential borrowers by offering most competitive rates on broker negotiated deals as well as verified brokers to answer all your mortgage related queries online, absolutely free of cost.
By Vidhu Bajaj