In a recent study, we asked over 1,100 Aussies what they are most concerned about when it comes to the mortgage process, and 39% are worried about being able to afford repayments1.
To make sure the mortgage you commit to now still be affordable in the future no matter what life throws your way, it is important when it comes to estimating your repayments, to not get carried away by the maximum amount a lender is willing to offer you.
Here are a few things to consider:
1. Tally up all the costs of buying a home
The costs of buying a home don't begin and end with the mortgage. Apart from being able to successfully save for a house deposit, it’s important to be aware of all the fees involved in buying a home before and after your loan settles.
Outside of a mortgage, stamp duty is likely to be one of the biggest costs you’ll have (it varies from state to state) and is usually paid upon settlement of the loan. In addition, other one-off fees include loan establishment fee, title protection and legal fees, as well as mortgage insurance fees (if applicable). You may also want to get a building inspection carried out on the property before you buy.
The costs of buying a home don't begin and end with the mortgage.
If the amount you're borrowing is greater than an 80% loan-to-value ratio (LVR), a Lender Mortgage Insurance (LMI) may apply to your loan. LMI is a type of risk fee and it is roughly 2% of the total price of your home. So the more you save for a house deposit, the more you can afford to borrow!
There are also other ongoing costs to be taken into account and some of them are body corporate or strata fees, council rates, utilities or insurances. To learn more about Pepper home loan fees click here.
It might feel overwhelming, but these are all predictable expenses and it’s important to closely look at what you can realistically afford to repay each month. It also means you’ll avoid surprises down the line. To get you started, use our Mortgage Repayments calculator as a guide to what your repayments could be on your new home loan.
2. Consider changing circumstances
Whether you love to travel, are thinking of starting your own business or want to start or grow your family, you shouldn’t have to let home loan repayments dictate those life choices. Build in buffer now so you have more flexibility as things change.
Think about your plans for:
- Family - children create additional expenses, plus you're more likely to be living in on one income instead of two for a period of time.
- Career - are you dreaming of going back to study? Or a career change? Factor in the short-term impact this could have on your current income.
- Renovations - is the house a fixer-upper? Or will you want to make your own mark on the place down the track? Be sure to include potential renovation costs and how you plan to finance them.
- Interest rate changes - a variable rate may shift with market changes, while fixed rates are the same for a specified period. Lenders consider your ability to repay the loan at a higher rate when determining how much they will lend you, but it’s also a good idea for you to decide how comfortable you would feel if rates go up again as it can impact your monthly home loan repayments. To learn the difference between variable and fixed interest rates click here.
- Safety nets - insurance premiums, such as income protection, may add to your monthly costs but they also give you confidence you can always make your repayments no matter what happens in life.
Remember: When deciding on a home loan, it is also important to compare the types of home loan features available that might support your changing needs in the future. For example, repayment options, redraw facility and offset account are some of the most popular options that will give you flexibility in managing your cash flow should your situation change. Learn about Pepper Money’s home loan features.
3. Be realistic about your expenses
How do you imagine life will be once you have a mortgage? Do you love dining out, going to the movies? Or have regular subscriptions you can’t live without? It’s fine if you intend to continue your lifestyle, as long as you’re realistic with yourself. With a little planning, many people can afford a home loan without completely giving up their lifestyle. Check out these handy budgeting steps to help you stay on track with your finances. Work out the must-haves and nice-to-haves before you commit to a mortgage, and you will be prepared both emotionally and financially for this next exciting stage of life.
It’s also a good idea to speak to a financial adviser to make sure the amount you are looking to borrow is in line with your current situation and financial goals.
Ready to get started? Try our Mortgage Repayments calculator to see what repayments could look like on a Pepper Money home loan.
Want to know more about Pepper's home loan options? Speak to one of our friendly Lending Specialists today on 13 73 77, or enquire online. Alternatively, speak to an accredited Pepper Money broker for more information. They're there to help.
This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77.