Your dream home. It’s everything you’ve ever wanted, but how much are you willing to pay for it? Many Australians are taking big risks when it comes to acquiring their dream, taking out home loans that are well beyond their budgets.
By Michelle Balogh, Money Maven.
According to a new study by Finder.com.au, 1 in 5 Australians have admitted to feeling pressured to purchase a bigger home than their friends. 1 in 10 say that they worry what others will say behind their back and couldn’t handle not living in as good an area as their friends. But relying on the opinion of friends when purchasing property is a risky business. Making reckless purchasing decisions lands Australians in extortionate home loan debt that they will struggle to pay off.
‘Purchasing your first home is an exciting time and it’s easy to get distracted by other people’s opinions or feel pressured to purchase a place that will impress others or make them envious of you,’ says Jeremy Cabral, publisher of Finder.com.au. ‘The reality though is that first home buyers need to consider the cost of keeping up with the Joneses and whether they can afford the repayments on a bigger property in a more highly desirable area. Rushing into a decision like this can end up costing first home buyers gravely down the track.’
‘First home buyers are always tempted to buy their dream home first. When actually, they should consider something more in line with their current budget to get them on the first rung of the property ladder and then buy bigger once the equity on the place builds up,’
Top factors to consider when taking up a home loan:
1. Budget above and beyond: Whilst interest rates are currently low, it’s important to protect yourself against any unexpected interest rate changes that may occur down the track. To stay safe, Australians are encouraged to calculate the budget for their home loan 2% higher than the actual cash rate. Better safe than sorry!
2. Stick to the sure things: don’t rely on annual bonuses or an anticipated increase in your pay to cover home loan debt. Think of those exciting influxes of cash as the bonuses they are, not as essential life rafts – avoid disappointment when an uncertain economy means bonuses are put off till next year.
3. How much of your income can you count on? Gone are the days when couples relied on the soul income earner to pay the mortgage. These days most couples rely heavily on both partners incomes to cover their home loan payments. That said, you never know what the future may hold, and couples are encouraged to base their home loan budget on just 1, or at most 1.5 incomes to allow for any changes in income that may occur.
4. Don’t take the maximum loan amount: It is important to be steered by your budget rather than accepting the maximum amount just because the lender has offered it. Consider your repayment terms rather than seeking approval for the maximum home loan.
For more visit: Finder.com.au