Portion size. It’s something we’re often told to think about when it comes to food, but what about your mortgage?
In fact, portion control is a crucial part of maintaining a well-balanced financial diet and similarly, ‘super sizing’ can wreak havoc with your financial health. Unlike with food, however, what’s right for you isn’t always a clear cut issue and mortgages do not come in simple small, medium and large meal deals.
So when it comes to determining exactly how much debt you should take on, it pays to do some careful thinking and calculating. A key point to remember is that what you are able to borrow is not always what you should borrow. While a lender may be willing to lend you a certain amount, that doesn’t necessarily mean you should always take up their offer in full. Be sure to think carefully about how much you are comfortable borrowing. Taking a long-term, ‘big picture’ approach to debt is important. Think about your future plans and whether your ability to service your home loan is likely to fluctuate in the near future.
For example, will you be looking to enroll in further education? Are you planning on starting a family? Or perhaps you’re thinking about sending your children to boarding school. Major events and expenditure such as this can put pressure on your ability to service your loan. It’s also crucial to consider changes outside your personal circumstances, such as fluctuations in borrowing costs. Would you be able to meet the same mortgage obligations if interest rates were to rise? A good rule of thumb is to factor in ‘breathing room’ for at least a two per cent increase in your interest rate.
Of course, it’s not easy to predict the future, but a little thought at the outset can certainly help protect you from some of the bumps along the road. A well-planned approach to debt can make your borrowing experience much less stressful, and even enjoyable, as you witness your debt shrinking and your wealth accumulating.
Of course a mortgage broker is best placed to help you determine your borrowing capacity and exactly what size debt suits your financial health.
If you’d like to talk to John, he can be contacted on 0749722081 or 0410433919. You can also email him at email@example.com or look him up on the net www.ihl.net.au. John Whitten is a credit representative (CRN 399796) of BLASSA Pty Ltd (Australian Credit Licence No 391237).