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 How much can you borrow?
A number of factors affect the amount one can borrow. The amount of net income is a main factor, but also the deposit one can put down. Income levels will also be adjusted by the number of dependants the borrowers have and the limit on the credit cards, whether they are fully drawn or not. The current interest rate and the term of the loan will also affect the amount of money that can be borrowed.
A number of home loan scenarios are outlined below to illustrate the differing factors and how they affect the amount that can be borrowed for the purpose of home loan finance.
Scenario 1:
Single borrower, no dependant children, net Salary $4,000 per month.
The borrower also has car payments of $350 per month and a credit card with nothing owing, but it has a limit of $5,000*. The loan is to be repaid over 30 years and the current interest rate is 7%.
In this scenario the borrower can obtain approximately $280,000 to finance a property ( the repayments will be approximately $1,860 per month ) (full repayments tables are here).
*NB: Even though the credit card has a zero balance it is assessed by the lending institution as essentially a personal loan of $5,000 and hence it reduces the amount one can borrow. In this case if the borrower had no credit cards, they could borrow an additional $35,000 for their home loan.
Scenario 2:
A Couple acting as joint borrowers, 1 dependant child, net combined salary $8,000 per month.
The borrowers also have personal loan repayments of $600 per month and 2 credit cards with combined limits of $10,000. The loan is to be repaid over 30 years and has an interest rate of 7%
In this scenario a home loan of approximately $640,000 can be granted ( the repayments will be approximately $4,250 per month ) (full repayments tables are here).
NB1: In the same scenario a single borrower would be granted a home loan of $680,000.
NB2: If the couple in the above scenario had zero dependants they would be granted a loan of approximately $680,000. If the couple had 2 dependants they would have been granted a home loan of only $600,000.
Scenario 3:
A couple with a joint income of $13,000 per month and zero dependants
The couple also have credit cards with total limits of $20,000.
The couple will be able to borrow approximately $1,000,000 on a 30 year mortgage at 7% interest. If the rate of interest was 8% the maximum loan amount would be reduced to $940,000.
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