Author: Xavier Quenon

The amount you can borrow and the amount you should borrow are sometimes two very different things. Before you apply for a home loan, it makes sense to realistically assess your financial situation. Here’s how to do it.

Understand your borrowing capacity

Generally speaking, your borrowing capacity – what you can borrow – depends on a number of factors, including:

• your income
• your monthly expenses
• your existing debts
• how much deposit you have saved
• current interest rate
• type of loan
• whether it’s a principal, or principal and interest loan
• the term of the loan
• estimated repayments.

However, knowing the difference between what you can borrow and what you should borrow is very important. As a general rule, it’s not a good idea to allocate more than 30% of your monthly household income to repaying your home loan.

Build a budget

To fully understand what your realistic borrowing limit might be, first of all create a budget – and stick to it. Once you understand exactly what’s coming in and going out you can properly assess how much you can afford to repay – and therefore what you should borrow.

If you don’t feel comfortable drawing up the budget yourself, it’s wise to seek help. A financial planner can assist you in preparing a budget.

Expenses to include in your budget include, but are not limited to:

• council rates
• body corporate fees (if applicable)
• insurance costs
• maintenance costs
• utility bills
• estimated groceries
• medical bills and health fund payments
• school fees
• phone and internet costs
• petrol and transport payments
• entertainment, travel and clothing
• other loans or credit card debts.

Future-proof your figures

Remember to leave a bit of wiggle room in your budget in case circumstances change. People can lose their jobs or get sick, or interest rates can rise, which could impact your ability to honour your repayments.

It’s also important to think about some other things that may happen: Is your income likely to increase within the next few years? Are you likely to have children and lose an income? Do you plan to retire shortly? These are all questions that only you can answer, and they will all have an impact on how much you should borrow.

Remember, lenders tell you how much you can borrow, but you know your personal circumstances better than anyone else – it’s up to you to decide how much you should borrow. If you need support and advice, a mortgage broker may be helpful during the decision-making process.

Brisbane, Australia

No doubt most people have now heard that the Reserve Bank of Australia has slashed the official cash rate to one of the lowest in history.

Adrian started investing at the age of 19. Nine properties later, what advice does he have for others wishing to follow in his footsteps?

“I’ve learnt a lot since I started investing in property, but if I had to whittle it down to a short list, it would probably go something like this.

1. You don’t need a high income to start investing, you just need to start by purchasing property that suits your income. When my brother and I started investing, I was just 19 and we both had low-income jobs. We couldn’t afford to purchase anything in close proximity to the Melbourne CBD, so we chose to target a townhouse in Frankston, a suburb with a rough reputation but with solid fundamentals in place that allowed us to enter the market for under $250,000 and see sustainable gains over time.

2. It’s not about timing the market, but time in the market. The sooner you can start investing comfortably with a view to holding long term, the better. By the time I was 24 and started really focusing on investment, I was already able to reap the benefits of equity resulting from a six-year hold.

3. Joint ventures help you get started, but they’re not necessarily a sustainable investment plan. If I hadn’t had my brother to motivate me to save and invest, and to go halves with me on each deposit, I probably still wouldn’t have any properties to my name. But joint ownership has the potential to significantly limit your lending capacity in the eyes of the banks, a major factor behind my decision to finally go it alone.

4. You don’t get to purchase property without sacrifice. Much of my twenties was spent sacrificing the luxuries that my mates would enjoy. I didn’t holiday overseas, I didn’t get personal loans, I didn’t finance a new car purchase. If I’d done those things I never would have made it to where I am today, but at the time sacrificing those luxuries felt like a lot of hard work. In hindsight though, things definitely get easier if you put the hard work in early.

5. Make sure you’ve always got a good buffer in the bank. There’s no use working hard to buy property if an unexpected event puts your entire portfolio at risk. Luckily the worst we’ve had to encounter thus far is replacing a leaky roof, but investing without savings in the bank is a risk I’m just not willing to take.

6. Hiring the right people is essential to the success of your portfolio, regardless of the short term-cost. Just because you’ve saved the funds to invest, it doesn’t mean you’re an expert. A good property manager and a good mortgage broker are a must, for example. But you should also consider enlisting professional help to assist in finding a property.

By the time I was ready to go it alone and purchase without my brother, I was looking at properties worth a lot more than my initial purchases, and it finally dawned on me just how much was at risk. When I was going to invest $750,000 on a property in Moonee Ponds, I wanted to really make sure I was making the right decision. I wasn’t prepared to go into a purchase hoping that good luck would prevail, so I interviewed a lot of buyer’s advocates and eventually settled on someone who really felt right and helped ensure all the boxes were ticked.”

Read on to learn about the First Home Owner Grant (FHOG) in each state and territory.

Buying your first home can be exciting – and overwhelming. You work hard to save that all-important deposit, looking at properties, and counting down the days until you can move into your own place.

However, your ‘great Australian dream’ could actually happen sooner than you think. Thanks to government efforts to accelerate home ownership and boost the home building industry, first home buyers are now eligible for grants and subsidies.

Buying your own home remains the great Australian dream – and purchasing a second property may help you take your wealth further. Whether you’re building your property investment portfolio, buying a holiday house or supporting a family member, there are plenty of things to think about before you take that next step.

Consider your cashflow

Property tends to be a long-term investment, so do your sums to make sure you can afford the ongoing repayments on two mortgages. Also think about any major life changes on the horizon. For example, you may be planning to expand your family, or you might need to support a parent in the coming years.

Get to know the market and location

Research what’s happening in the current market and whether it’s the right time for you to buy. Get to know the area you’re considering by speaking to local residents and real estate agents. It’s also wise to look into the short and long-term planning for the area. For example, nearby construction may affect your ability to find a tenant.

Investigate before you invest

If you’re buying a property as an investment, carefully consider its location. Buying in a high-demand area is likely to see you enjoy a constant flow of income from the rent.

You’ll need to provide your lender with a rental estimate letter, which you can get from the agent managing the property. Keep in mind that generally lenders only take 70–80% of the rental income into account when calculating whether you can afford the loan.

Choose the right mortgage

The amount you can borrow and the type of loan you choose will depend on various factors, including the equity in your current home, your income and expenses, and your property valuation. It helps to get quality advice on the right mortgage for you, along with other considerations such as negative gearing, and how to structure your loan to maximise tax effectiveness.

Whatever your reason for considering a second property, being well-informed will ensure a smoother purchasing process and a financially secure future.

And how better to do this then to leverage our knowledge and experience? At Go Mortgage we are investment experts and always enjoy seeing new investors come into their own and existing investors grow their portfolio… So get in touch and complete the ‘How Can We Help?’ section to the righ of this page

As a new home owner, you may be asked by friends and family interested in buying their first home what to consider before diving in. Here are five tips you can pass on.

Out-of-cycle interest rates combined with the broad spectrum of home loan products available and the ever changing bank policies has led to the most chaotic marketplace in Australian history.

The lending landscape has never been more unclear for borrowers, despite the Reserve Bank of Australia’s official interest rate remaining unchanged at 2.0 per cent for almost a year.

Home owners have to tip toe through a mortgage minefield at the moment and it’s only expected to get even more confusing.

Interest rates are being raised independently of the RBA’s deliberations while we also have a range of home loan products with some of the biggest price differentiators in memory. These product pricing differentials are across-owner occupied, investor and interest-only products.

On top of that, lenders have different policies and loan to valuation ratios (LVRs) for the different products.

And with further pressure from the ASIC and the bank regulator – APRA – who are forcing more changes and pressure on the banks it is unlikely to get better in the short term.

Lenders have cited cost of funding issues and regulatory changes as the reason for out-of-cycle increases, including surges on investor loans by 0.12 to 0.47%. There has also been the out-of-cycle raises on home loan rates in response to rising funding costs and the additional costs coming in for the extra compliance and regulatory increase on reserves that the banks will have to have in place by the end of June this year Confused mortgage holders must be struggling to keep on top of all the changes.

But as a borrower you can’t afford to adopt a set and forget mentality with their home loan as it could cost you thousands of dollars.

This will play in favour of borrower – broker relationships as the brokers are the best placed to offer credit advice in this ever complex marketplace.

The rising cost of funds and ongoing regulatory changes are creating “the perfect storm” for banks to begin raising their home loan rates.

There are numerous reasons why banks may soon be compelled to increase home loan interest rates and continue to do so over the next 12 months. Wholesale funding costs, pressure on profit margins and ongoing regulatory changes may be pressure points for the banks. The rising Australian dollar and increased compliance costs are other factors which are also putting pressure on banks to increase home loan interest rates… especially in the Investor space Due to this, it is time for borrowers to think the likelihood of interest rate movements has become important and imminent It is potentially a good time to start discussing with your broker the possibility of refinancing under a fixed interest rate. Call us, email us or send us a Private message and we can help obtain the best outcome