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Knowing what you can afford to borrow
If you're planning to buy your first home or move to a new home,
you should first know how much you can comfortably afford to borrow.
You need to answer this question before you begin examining the
different mortgage products available.
As a basic rule, lenders will let you borrow an amount so your
monthly payments don't exceed 30% of your pre-tax income.
This table below is a guide to how much a financial institution
may let you borrow. Although variable interest rates may currently
be lower, our figures use 9% as a guide to what you may need to
pay should interest rates rise.
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Annual Income
|
Maximum monthly payment at 9% for
25 years
|
Maximum Borrowing
|
| |
$750
|
$89,382
|
| |
$875
|
$104,291
|
| |
$1,000
|
$119,180
|
| |
$1,125
|
$134,088
|
| |
$1,250
|
$148,987
|
| |
$1,375
|
$163,886
|
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$1,500
|
$178,784
|
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$1,625
|
$193,883
|
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$1,750
|
$208,882
|
| |
$1,875
|
$223,480
|
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$2,000
|
$238,378
|
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$2,125
|
$263,278
|
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$2,250
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$268,178
|
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$2,375
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$283,075
|
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$2,500
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$297,874
|
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$2,625
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$312,872
|
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$2,750
|
$327,771
|
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$2,875
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$342,670
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$3,000
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$357,689
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Lending institutions prefer borrowers to have saved 20% of the
purchase price as a deposit. They will lend up to 90% of the value
of the home - usually subject to mortgage insurance. In some cases
they may even provide 100% of the loan if the borrower can demonstrate
a capacity to service the debt. Still, most financial advisers say
that the larger the deposit, the better.
Be careful of schemes presented as a means to break free of the
rent cycle and own your own home. These offers may sound enticing
- but take time to evaluate the details.
Some arrangements involve purchasing a home with no deposit or
borrowing more than the home's value. Remember, purchasing a home
with no deposit means paying interest on the full purchase price.
Other offers include the lending institution putting up 90% of the
purchase amount and a budding organisation lending the balance at
a relatively higher interest rate. Always check purchase agreements
and compare all interest rates and charges. It could be less expensive
to continue renting while you save a sizeable deposit than to pay
high interest on the full amount for an extended period.
Also be aware that home prices can fluctuate. If you have only
a small amount of equity in your home and prices fall, you could
owe more than the home is worth.
Other information in this guide:
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