Affordability

How much house can you afford?

You and your wife are buying a home, what home loan should you consider? We’ve given you an equation to work it out. Very simply, the major banks will give you up to twenty times your combined monthly salary. What else should you consider? Keep an eye on these important factors:

1. Future interest rate increases The vast majority of bond foreclosures occur during times when interest rates are high and monthly installments become unmanageable. Very few families can pay more than 25% of their monthly income on bond repayments. That’s why banks put their lid on at this percentage. Consider taking a loan for less than you can presently afford, you may come to be grateful you did!

2. Possible salary reductions Most people’s salaries don’t decrease but if you’re self-employed, work on a commission basis or have any other form of uncertain income, make allowance for a possible downturn in the future. Will your wife continue working for the next ten years? If not, allow for the future loss of monthly income. Give yourselves some breathing-space.

3. Increased future expenses Another good reason for taking a home loan for less than you can presently afford. It may be your child’s future university education, repairs to your home, higher levies or rates, and other similar burdens. Some foresight and wisdom now will hold you in good stead at any future time when your spending power may be less than it is now.

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