Need a Loan? How much Can I vs Should I borrow?

When it comes to loans and mortgages, sometimes there is a big difference between how much we can borrow and how much we should borrow. It is wise to assess your financial position prior to applying for a home loan. Finance brokers can significantly assist once they have a clear picture of your financial position. Here are 3 key factors to be mindful of:

1: Borrowing Capacity

Have a good understanding of your borrowing capacity – which is what you can borrow. Here are a few factors influencing your borrowing capacity:

  • Your Income

  • Your Expenses (monthly)

  • Your current debts

  • Saved deposit amount

  • Current interest rate

  • Loan type

  • Length of the loan

  • An estimate of the repayments

It is very important to know the difference between borrowing capacity and how much you should borrow. It is generally recommended that no more than 30% of your monthly income should be used to repay your home loan.

2: Build a Budget

Creating a budget and sticking to it will help you in understanding your realistic borrowing limit. The simple financial knowledge of your incoming and outgoings can accurately show you how much you can afford to repay and hence borrow.

If you are not comfortable doing the budget yourself, financial planners can assist.

Here are a few expenses to include in your budgeting:

  • Council rate

  • Body Corporate fees

  • Insurance expenses

  • Maintenance costs

  • Utility bills

  • Grocery costs

  • Health fund and medical cost

  • School fees

  • Internet and phone bills

  • Transport payments, such as petrol, tolls, etc.

  • Entertainment

  • Travel

  • Clothing

  • Other Loans

  • Credit Cards debts

3: Be mindful of possible Change of circumstances

Leaving some room in your budget just in case of changes in circumstances is highly recommended. Unfortunately, it is not uncommon these days to be faced with challenges such as loss of a job, getting sick, interest rate rise, and many more which will have an impact on your ability to make repayment requirements.

There are other factors needing consideration that will also affect your income and expenses. Here are a couple of examples, income increase over the next few years, the possibility of having children or even Retirement to name a few. Only you are able to answer these questions and once consideration is given, determining the amount that is right for you to borrow.

Of course, the lenders will be able to decide how much you can borrow from them once they have collected all the information they need, however you are the one that is aware of your circumstances best and it will be up to you to decide how much you should be borrowing.

As your finance broker, we have access to a myriad of loans from a large range of lenders. We put a lot of work behind the scenes to save you time, effort & most importantly save you plenty of unnecessary stress.

Contact us to discuss how we can help you.