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Not everyone will do it, but most people will consider it at some stage in their lives – borrowing to buy their very own home. It can be an exciting venture, but also a scary one if you don’t plan well.
Whether you are borrowing to buy your first home, or upgrade your existing property, it is imperative you take the necessary steps to ensure you do not borrow more than you can comfortably repay. You might think that’s blatantly obvious, but this can be an extremely emotional time and under such stress, sometimes common sense disappears.
You should be aware of your exact financial position, how much you can afford in repayments and have emergency plans to cater for contingencies such as increasing interest rates or changes in income.
A great idea is to keep income and expense records for a period before you take out a new mortgage to track your cash flow movements. You might even have a trial run for a few months to prove that you really can set aside the full amount of your planned repayments without too much pain.
Then, when it’s time to establish the loan, keep in mind the following...
- Is the interest rate the lowest available?
- Are the features of the loan right for you? Don't pay extra for features you do not need.
- If rates are increasing, consider having a fixed rate for at least part of the loan, this will give you some protection.
- Don't borrow more than you are sure you are able to repay. (This might seem obvious but if you are tempted to borrow more to buy a “nicer” house, remember it could cause you pain later.)
- Allow for unforeseen emergencies such as ill health or unemployment. Take out income protection insurance to cover your income against sickness or accidents.
- Make sure you won’t have obvious major expenses coming up, such as replacing your car, before you commit to a mortgage.
Once you have enjoyed the excitement of moving into your new home you may need to forgo new luxury items until you have significantly reduced the level of your mortgage. A golden rule is to never take on further debt, such as adding non essential items to your credit card, early in your mortgage. If you plan an expensive holiday or a new car, it is best to save for these as a special project.
Our Finance Broking team can guide you through the mortgage maze and help you determine how much you can safely borrow, and the best mortgage and features to suit your circumstances.