How Much Can I Borrow Or How Much Should I Borrow?
TIP This is a question worth asking early in your First Home Buying journey as it establishes several parameters for what you want to achieve! The internet is full of borrowing capacity calculators which will give you some indication, however a more accurate and reliable source will always be your Mortgage Broker or a bank. In assessing how much you can borrow the lender considers your income, savings, expenses, other loans, credit card debt, credit card, spending history and assets.
Most lenders have policies as to the percentage of the purchase price that they will lend you. This number varies by lender but as a guide, most lenders will lend money up to 80% of the purchase price. Where you need to borrow more than the banks ideal lending ratio, the lender will generally require you to take up a Lenders Mortgage Insurance also known as LMI. The workings of LMI are outlined separately.
TIP Knowing how much you can borrow is certainly helpful and relevant, however depending on your situation, understanding how much you SHOULD borrow, is a fundamental question to ask yourself! Over time, there have been many examples of individuals who have borrowed above their practical capacity, only to find themselves in trouble the minute market dynamics change. The Royal Commission into Banking in 2018, revealed many examples of Australians, who found themselves exposed to repossession and at times lost everything in the process.
Interest rates change and there is always a risk that rates could increase. When considering the amount of money you should borrow, it is necessary to accurately calculate how much you have available each month for loan repayments. Depending on each individual, you can calculate repayment capacity based on present interest rates and you can also factor in some margin for potential increases. A good practice is to setup an excel spreadsheet and do what if scenarios using a rate up to 4% higher than market so that you understand the likely impact every time rates increase by .5%. Many may not remember, but in the mid 80’s interest rates rose above 15% and for a period higher than 18% as shown on the graph. Whilst this level of interest is unforeseeable in the future, every borrower needs to consider the possibility that rates may increase, as such you need to always be prepared. A good Mortgage Broker is generally happy to assist you calculate scenarios specifically for you.
Another factor for consideration is job security. To manage your risk, it is a good idea to factor the possibility that you or your partner could be out of a job for 3 to 6 months, during the duration of your loan.
TIP There are possible strategies for protecting yourself against situations which are either unforeseen or out of your control. One option you may consider, if your loan allows it, is to make extra repayments on your loan whenever possible. This can be in a lump sum, or by increasing the frequency of your repayments. Being in a position where you are 5 to 6 months ahead of your repayments, can be a protection mechanism and put your mind at ease. It also results paying less interest over the term of your loan and paying down your debt sooner.
If your loan prevents you from making additional payments, consider setting up an Offset Account and place extra payments into this account, specifically to protect you for unforeseen changes in your life.
Whilst these are guidelines you can use, the best way to establish how much you can borrow is to meet with your Mortgage Broker and they will discuss your maximum borrowing capacity. This will guide you in terms of a purchase price that you can target for your new home.
Remember your maximum borrowing capacity is not necessarily your best borrowing capacity. Consider all factors especially how much you can afford to repay before making your final decision. Brisbane Home Loans Mortgage Broker Specialists can assist you.
Why Choose Brisbane Home Loans
You're In Good Hands
Brisbane Home Loans is all about good old fashioned personal service without exception.
We Find The Right Deal For You
We take the time to listen to your needs and then search the market for the best products that satisfies your needs at the lowest possible cost to you.
We continue to work for you after the deal is finished, ensuring that we asess any new offers that become available which may improve your current deal.
One Stop Lending
We give our clients access to Personal Loans, Home Loans, Investment Loans and Commercial Loans. You always only deal with on person for all your lending services.
How We Work With Our Clients
We can meet clients in our office, in their home, their office or the local coffee shop. Our initial interview will helps us understand the clients needs in the short, medium and long term so that we can find the best possible lender for your loan.
The world of financing continues to be more and more complicated. Our Lenders have experience in finding the right product to meet the specific needs of each of our clients. During this phase, we identify two to three options that may be suitable.
Our Lending Specialists will present to you a number of options available outlining the differences, benefits and downfalls of each option presented. Our preferred option and reasons why, we consider this the best fit for you will be clearly explained.
Our Lending Specialists work with our clients to have all documentsation signed, submitted to the lending institution and processed through to approval.
We pride outselves on client service which is why our Lending Specialists establish a reasonable review timeframe where they touch base with our Clients to ensure everything is working as planned. During this review, the client is made aware of any new financing options in the market.
Brisbane Home Loans is not about one off loans. We truly care about our clients, which is why we stand by their side beyond the completion of the loan.
Being Our First Home It Was Great Having The Knowledge of Daniel & The team at Brisbane Home
We have been working with Daniel and the team at Brisbane Home Loans for the purchase of our first home, being first home buyers it has been great having the knowledge of Daniel & the team at Brisbane Home Loans to support us. We can’t thank them enough for their support and making themselves available to answer all of our questions. I’d highly recommend Brisbane Home Loans.
We Saved More Than 1% On Our Existing Home Loans
We didn’t realize how important it was to review our home load until we engaged with Daniel and Jordan at Brisbane Home Loans. They helped in submitting our application which resulted in a saving of over 1% in interest on our loans, plus a reduction in our on going bank fees. I would recommend this business and thank Daniel and Jordan for making the process so easy.
Sam and Nicky
It was Our First Home and We had No Idea. Thanks to The Team From Brisbane Home Loans
Daniel and the team at Brisbane Home Loans were super helpful and friendly to me as it was my first home loan and I had no idea! They answered all my questions and were very hardworking. Would definitely recommend to a friend.
They Made Buying Our First Home Easy and Fun. Thanks
The team at Brisbane Home loans have been super helpful and extremely professional to assist us with all our first home questions.
will be recommending them to everyone I know looking to buy!
Thanks for Helping me Turn my Dream into a Reality
Service was great, very informative and kept me up to date on all progress and all steps. Follow up after it was all done and dusted was also great. Took the stress out of it which was a great help for my busy life. I would totally recommend Dan and Jordan to anyone.
Thanks for helping me get my dream into a reality.
Car Loan Approved In Less Than 3 Hours – So Wrapped
I could not believe how quickly Jordan was able to organise my car loan. He was so helpfull and I am truly greatfull.