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