The Inside Story on Property Finance

Despite what the bank says, can you really afford that loan?

propertyfinanceuncut — Wed, 16 Apr 2008 10:40:16 +0000

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.

Does a property finance loan application commit me legally to the lender?

propertyfinanceuncut — Mon, 11 Feb 2008 23:07:50 +0000

The short answer is no. A completed property finance loan application form is not a legally binding document.

A completed loan application form accompanied by supporting documentation serves to inform the lender what the person applying for the loan wants and and also gives the lender sufficient information for them to decide if they are in a position to provide the loan being applied for.

A person applying for a loan only becomes legally committed to the lender when, after the loan application is unconditionally approved they sign the offer document which formally offers the loan and stipulates the terms and conditions of the loan

When this document is signed by the person who has applied for the loan and counter signed by an authorised officer or agent of the lender, then the offer document becomes the loan contract.

The person applying for the loan is in a position to withdraw from the application at any time until the loan contract is signed.

Property Finance Uncut Has Arrived!

propertyfinanceuncut — Sat, 09 Feb 2008 12:26:27 +0000

All you ever needed to know about property finance….but were afraid to ask!