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How to make finance calculators work for you

How to make finance calculators work for you

Getting a clue as to how your finances work doesn’t have to be complicated, and thanks to finance calculators found online, you can make sense of your money with the right calculator.

The internet has given us some amazing things: cat videos, memes aplenty, and an endless supply of adorable babies. But did you know it can deliver a calculated approach to calculating your finances?

That’s the point of a finance calculator, a tool seen on various websites that can answer the question of how much money you might need for something, and how much you stand to gain. Important questions, obviously, and ones you might not have been able to answer yourself.

So where do you start, and how can you make a finance calculator work for your life?

Learn your borrowing power

If you’re thinking of diving into the housing market this year, it’s a good time to brush up on the lingo. Whether it’s your first home or something you plan to use for investment purposes, learning how much you can spend is a big part of being able to buy that house in the first place.

How much you can take out is also known as “borrowing power”, and depends on how much you make, how much of a deposit you have, what your credit history is like, loans you’re paying off, and other aspects significant to your life.

Everyone’s borrowing power is different, though it can and will affect how much you have to work with when buying a home.

You might think that borrowing power can only be told to you by a broker, but that’s just simply not true. While a broker will give you the best chance of learning your true borrowing power, a borrowing power calculator can get you a realistic answer on how much money you should be able to use.

RateCity’s home loan borrowing calculator can provide that answer, offering an estimation on how much you have to work with based on your current finances.

How much extra will you need for home buying?

Working out how much money you have to play with is just one part of calculating home loan requirements, because you also need to work out how much actual money you’d need to spend.

Buying a home isn’t just the overall purchase price, after all. There are other things to consider, such as a building inspection, possible renovations, and then the obligatory things we wish we didn’t have to factor in, but will anyway.

For instance, if you don’t have 20 percent of the loan or over, or you don’t have a guarantor for your home loan, you’ll very likely have to pay Lender’s Mortgage Insurance. Also called “LMI”, it’s a type of insurance that insures the bank or lender, but not you, and basically accounts for their risk to lend to you.

If you haven’t managed to hit that 20 percent amount, LMI is tacked on with the loan, and is something extra you’ll have to pay. Lender’s Mortgage Insurance is different on a property-by-property basis, but you can find a calculator to help work out the cost of LMI on RateCity.

You might get out of paying LMI if you have a big deposit or a guarantor, but you probably won’t get out of stamp duty. A fairly standard side of home buying in Australia, stamp duty is charged on properties at different rates, though depending on if you’re a first home buyer, you could be given a reprieve or even a discount.

However, you also may not, so calculating your stamp duty is a handy idea if you’re considering buying a home. Fortunately, RateCity offers a stamp duty calculator, making it just that little bit easier to work out how much you’d potentially need to hand over at the time of purchase.

Make your savings account work for you

You work hard for the money, but that doesn’t mean the money works hard for you. Depending on the type of account you have your money in, it might be possible to get more out over a long period of time.

By “long period”, we mean it. To get the most out of savings accounts and term deposit accounts, you need to leave your money in for a term, taking advantage of interest rates and time to increase the money you can earn.

However you don’t need to do it on a punt, because calculators can help make that decision a little easier, finding out whether a certain bank account is better for your money than something else.

A savings account calculator will help you understand how much money you can earn and still use, and if you find it’s not enough, there’s always a selection of savings accounts to consider switching to.

Term deposits work a little differently, and ask you to invest a potentially larger portion of money for a period of time. The longer the time and the higher the interest rate, the more you can potentially make, with a term deposit calculator able to help you work out how much money you stand to make.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.



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