What you can borrow or what you should borrow? – Part 1

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
  • 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.

See Next Weeks Post: What you can borrow or what you should borrow? – Part 2