I was entering a particular scenario into various lenders loan calculators a couple of days ago. The scenario I entered was a couple (joint applicants) with a gross joint income of $146,400 providing a net income of $108,312. The couple have one dependent child and no credit cards, no store cards, no car or personal loans or any other financial commitments. Even if they did, it was not always required to input this information into the loan calculators which were sampled.
My alarm bells started ringing when one calculator calculated that a loan of $990,000 was possible for this couple. Assuming an interest rate of 9.37% the repayments for a standard variable interest loan of $990,000 over 30 years would be $8230.43 per month. This couple’s net income (take home pay) is $9,026 per month leaving only $795 per month for general living expenses such as food, electricity, gas, water, land and mobile phones, car registration, insurance, servicing and petrol, home insurance, clothes, haircuts and entertainment. This particular couple budget to spend $3,000 in total per month for these items which is $2,205 in excess of what they would have available if they proceeded to secure the loan of $990,000!
The loan calculator of one of the major banks calculated that this couple could obtain a loan of $775,835 requiring repayments over 30 years of $6,498 per month for a standard variable interest rate loan. From the couples take home pay of $9,026 per month, they would be left with $2,528 per month to meet their budgeted commitments of $3000 per month, leaving them $472 short per month.
The lesson in this is that you need to budget and have a realistic idea of how much money you require for general living expenses and how much surplus you would prefer to be saving each month after meeting home loan repayments and all other living expenses.
It is up to YOU to decide what you can afford, not lenders. That lovely new home could rapidly lose its appeal if the cost of having it is financial stress and no lifestyle.
