Most Australians dream of buying their own place to call home but in reality the monthly home loan repayments required to cover a dream pad can leave people feeling very vulnerable. It’s great to dream big but the first thing you should do when considering taking out a loan is to calculate how much you can actually afford to repay.
The easy way to work out what size home loan you can afford is to calculate your home loan repayments. Once you have established how much you can comfortably pay off each month this will give you a good budget for the amount you can borrow and the home you can afford to buy.
As a general rule most lenders suggest you shouldn’t allocate more than 28% of your monthly household income to repay your home loan. Remember, while it’s an important future investment, you shouldn’t live above your means or you will risk finding yourself in hot water if rates rise and possibly unable to make your repayments.
A home is great but so is food. If you are setting your budget up so tight that your daily meals only allow for two-minute noodles, you may want to re-consider your options. To get a proper understanding of your home loan repayment budget use the RateCity home loan repayment calculator and home loan comparison page, to compare home loans and work out repayments on each loan. It’s only a guide but will help you determine mortgage affordability and whether you should borrower a smaller amount to live more comfortably.
For instance, a $250,000 home loan may require a minimum monthly repayment from around $1,700 depending on the lender and cash rate. Could you afford to repay this amount each month as well as other living expenses? The answer will determine a home loans affordability.
Don’t forget the rate rise factor when determining your home loan affordability. We’d recommend allowing for a 2 percent rate increase when designing your budget.
How to find the best loan
The most important thing to remember when applying for a home loan is that everyone’s financial situation is different so you are not going to find one home loan that will suit everyone.
The same rule applys when getting advice from friends and family, their loan may be great for them but you need to do your own research to see which home loan is going to suit you.
Get busy crunching the numbers with the home loan repayment calculator or speak to a financial planner. It’s never too soon to start shopping around for a great home loan deal as this will ultimately help you decide if you can afford to buy. Carry out a home loan comparison from the comfort of your lounge room now.