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How much can I borrow for a mortgage?

Woman worrying about bills

Knowing how much you can borrow is the first step in buying or refinancing your home.

It's also usually the first question that a broker is asked. All lenders make the final decision but it's good preparation to know in advance.

Work out your position

Start with adding all your expenses and compare this to your income (or both incomes if you have a partner).

Expenses include:

  • Car Payments

  • Food

  • School Fees

  • Childcare

  • Club Memberships (online ones too)

  • Living Expenses/Utilities

  • Credit Card Spending/Repayments

Only include house payments if you have an existing loan and these will continue after a refinance of your loan.

When you compare your expenses to your income, be prepared for surprises as unless you already know these amounts, often we spend more that we realise.

Think about rising interest rates

The official cash rate, set by the Reserve Bank of Australia, are at record lows and have been on hold for the past 12 months. This can only mean that rises are inevitable and most economists are expecting rises to start towards the end of this year or the start of 2018. We've also recently seen that banks aren't waiting for the office cash rate to increase before they increase their interest rates. I wrote about it here.

You'll need to factor into your expenses, paying more for your loan than you

might be at the start.

Think about the lifestyle changes you'd be prepared to make for your future

If you are able to make any needed lifestyle changes (that is, spend less before you get a loan) you will show the bank that you can service your loan.

Proving to the bank that you can spend less can increase the amount that they are prepared to lend to you.

You'll need to have these lowered spending habits for at least 3 months to show a bank that you're genuine in your efforts.

This applies if someone gives you some cash to help you. You must have this money in your account for at least three months. It''s also better to save little bits routinely than larger sums and then have to take money out.

What are your future plans?

Is having a baby in your future? Do you intend to change jobs in the next year or so?

If you're not sure about any of these things, come and see me and we can plan together.

Just call the office and make an appointment to see me.