One of the most common questions I face in my daily work is: what is my maximum borrowing capacity? This is not the question that responsible customers should ask. Buying a house is an exciting time, but sometimes, a few timely questions can protect people from their emotions.
It is important to break down what an affordable debt level is before seeking a loan. The best place to start is with a monthly budget. You have your broker to help with this
Every household has a range of regular monthly expenses which must be paid. Power, water, food, school fees etc. Then there are discretionary expenses like gym memberships, holidays, eating out and alcohol (some would place this in the other category). Adding up these expenses along with liabilities, rent etc. will give you a good base to determine how much of your household income is uncommitted and therefore able to be used for a future financial commitment.
As brokers, we complete responsible serviceability assessments to help protect borrowers. What we calculate may be lower than your estimate as we add buffers to protect you. We are completely aware that interest rates are very low historically, thus we aim to protect our customers by including a range of safety measures, including:
- Loading declared living expenses if declared expenses are not equal to or greater than average Household Expenditure Measures
- Interest rates are loaded and assessed at a rate of approx. 7.25% regardless of the actual rate. This allows for rate increases over the life of the loan.
- Interest-only loans are assessed as though the loan was being repaid via principal and interest repayments over the remaining term after interest only expires.
- Rental income is reduced by 20-25% to allow for tenancy issues and increased costs associated with investment property ownership
Brokers work for customers and it is in our best interest to ensure that you are placed not only in a great product, but that you are able to continue to live your life in the way you want without the constant stress of an excessively heavy debt burden.
For assistance with your current or future finances, please call Michael on 0428873008.