‘How much can I borrow?’
It’s the one question just about every client asks us! But it’s not the right question. A better one is ‘How much should I borrow?’ And this is where we can be of most help – to ensure our clients understand what the right loan amount is for their individual needs.
The risk in choosing the wrong loan amount
It’s a scenario that plays out all too often – people overextending on a purchase with a ‘buy now and worry about the consequences later’ mentality. It causes a great amount of financial pressure and stress; all of it unnecessary.
While banks have measures in place to avoid borrowers overextending, they’re still in the business of making money – by lending it to you!
Loaning up to your maximum borrowing power will always be a risk if you are not familiar with your cash flow. Furthermore, a suitable home loan is measured by the balance between:
- Being able to purchase a property, and
- Being able to comfortably meet the repayments
Steps to working out right loan amount
To help you work out the correct loan amount, pick a 6 to 12 month period and review your cash flow over that time. Then realistically ask yourself these questions:
- How much do you need to maintain the lifestyle you want?
- Do you have a safety net of savings (a store of a few months’ worth of loan repayments in case something happens and you can’t make one or two)?
- Will there be any major life changes happening in the foreseeable future (ie starting a family, changing careers)?
- Do you have to significantly change your lifestyle to take on the loan? If so, are you up for making those sacrifices?
- What would happen if interest rates rose by 1 or 2%?
How a broker can help you fit together the pieces of the loan amount puzzle
As we’ve mentioned, over-borrowing causes immense stress. You end up spending more time wondering how you’re going to pay your mortgage each month, than enjoying the beautiful property you’ve work hard to purchase!
This is where a good mortgage broker comes in. They’re indispensable in helping you determine the right loan amount for you. If you’re struggling to make a choice, please contact us here at Professional Partners. We’re always happy to help.