Advice for Borrowers

In the wake of yet another interest rate rise, it is timely to consider some important aspects of applying for a home loan.

The most important should be to always factor in future rate rises when calculating your borrowing power. Most banks will do this for you as part of their lending criteria, but it is also advisable to look at what your repayments may look like with a 2-3% increase in interest rates. There are plenty of calculators online to assist with this. A cautious approach might entail not borrowing to the full limit which the bank is offering.

Another important factor is to understand that mortgage insurance is payable where the deposit is less than 20% of the security (property value). A ball park figure for mortgage insurance quoted recently by a broker was $14,000 on a $500,000 loan. If that extra amount is rolled into the lending amount, it will be subject to interest and will end up costing exponentially more over time.

Paying more than the minimum amount due will significantly reduce the life of the loan, and the total amount payable. Even a small regular contribution will reduce interest and principal and provide a buffer for future rate rises or unforeseen expenses.

And lastly, if you are looking to buy, it is a good idea to seek pre-approval so when you finally find the right property, you are ready to go and can negotiate with confidence.

Have a great weekend and happy buying!

Until next week,

Nick Lord (Director)