Home Loans 101: The Question of How Much You Should Borrow

When you use one of our home loan calculators, you will receive an estimate of the amount of money that you can borrow. Since it is only an estimate, you still need to talk with our advisors to get a more accurate picture of your borrowing power.

However, being eligible to borrow a lot of money doesn't necessarily mean that that's the exact amount that you should ask from your lender. You also need to consider one important thing: your capacity to repay the loan. Some people get excited to get a sizable loan without first asking themselves if they can afford it.

Here are some things you need to look into:

  1. Your income. This is one of the most important considerations you need to make when getting a home loan. Your income should tell you immediately your ability to make repayments. If you have enough room for the repayments, then you're good to go. Otherwise, opt for a smaller loan.
  2. Your other financial obligations. Let's say you have a car loan, credit card debt, and other financial obligations. Now try to think whether or not your budget could still accommodate an additional loan. If not, you might have to juggle your budget around.
  3. Your status and lifestyle. If you're single, you might have difficulty saving up money for your deposit on your solo income. Having a spouse could significantly increase your borrowing capacity and your ability to make bigger repayments. However, this changes once you're raising a family since you'll have additional expenses--from diapers to education.

Your lifestyle would be a big factor here as well. If you're used to a luxurious life, you might need to temper it down a little in order for you to afford your repayments.

Unless you're doing it already, you have to do a major review of your finances in order to find out how much you should actually borrow. Doing so would definitely help you make your repayments a lot manageable. This is important since you will have to commit yourself to it in the years to come.

It also helps to consult Rate Detective's qualified advisors. They will help you choose the best home loan for you based on your lifestyle and personal circumstances, and even provide you with rate comparisons of Australia's top lenders. After all, you owe to yourself to make the right choice.

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Published on November 11-th, 2012 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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