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How Much Should I Borrow

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Banks use standard calculations and policies when assessing your borrowing capacity


As much as you can comfortably repay

It’s not that hard to work out your borrowing capacity. Every bank has an online home loan calculator that answers the question, “How much can I borrow?”. Working out how much you should borrow can be a little more difficult.

How much can I borrow?

The factors that lenders take into consideration in determining your borrowing limit are:

Your Net income

  • How much is your net monthly income (after all expenses)?
  • Will you have one salary or two?
  • Do you have other sources of income, such as rental properties or a part-time job?

Stability of income

  • Are you in full-time work?
  • How long have you been with your employer?
  • Are you self-employed?

Other loan repayments

  • Do you have a car loan or car lease? HECS study debt?A credit card debt? A personal loan?

Total credit card limit

  • A high limit can decrease your borrowing capacity

Credit history

  • A bad credit history won’t help – but you should be honest when you apply for a loan as all of your credit history is available to the banks ans other lenders

Number of dependents

  • Do you have children? On average one dependent can diminish your borrowing capacity by around $100,000.

Term of the loan

  • Are you taking out a 15-year or 30-year loan? Usually, the shorter the term the lower your borrowing loan limit. The longer the term than the higher your borrowing limit especially if you have a lower income scale. Usually a longer term will also increase your borrowing loan amount.

Interest rate

  • When rates are higher, your borrowing capacity will be lower as the bank’s credit assessment rate is higher affecting your borrowing amount.

Debt-service ratios

In determining your borrowing limit, lenders use what is called the debt-service ratio – the ratio of loan repayments to your gross income. For single income earners, this ratio should not exceed 35%. For double income earners, the ratio should not exceed 40%. Lenders also use a Net Surplus Income formula which considers very detailed analysis of all your expenses usually for every $1.00 of debt you borrow you must show at least a $1.50 in net income.

What aspects must you consider?

The lender’s main concern in determining how much you can borrow is “Can they repay the loan?”. They may not take into account a host of other personal matters – but you should. These include:

  • Income security
    You know more than the lender about the security of your income. How safe is your job?
  • Family planning
    You might not have children now, but are you planning to? And if so, will this mean going from two salaries down to one?
  • Job satisfaction
    If you have a highly paid job, you can borrow more. But, if you don’t like your job, or it’s highly stressful, taking out a large mortgage can have long-term lifestyle implications.
  • Lifestyle
    You might be able to afford to service a large loan, but only if you have no social life whatsoever. You need to consider whether that’s a trade-off you’re happy to make.
  • Other goals
    Property ownership has become a preoccupation for Australians. But, there are other financial goals to consider – like providing for your retirement. And money isn’t everything. Will taking out a large mortgage mean you’ll never fulfill your dreams?

Only you can decide

That’s why the question should not be ‘How much can I borrow?’, but ‘How much should I borrow?’. And only you can ultimately make that decision.

How Can We Help?

Request your personalised borrowing capacity report. Request your BEN Credit Capacity Analysis report to identify your BEN score which can help to maximise your credit capacity and reduce your credit risk.

The BEN Financial Stress Analysis provides you with a snap-shot of your financial capacity. It tracks your financial performance based on  market Lending Credit Assessment Criteria.

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About Author

BPRE Real Estate is a locally-owned and operated Sydney-based Real Estate Agency specialising in the sale of new, established and off-the-plan properties. We hold a Real Estate Licence together with an Australian Credit Licence with experienced support staff in the areas of property investment, real estate sales and finance services.

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