we have a loan approved but I am a little nervous about the repayments - is there a way in which I can get reassurance that we can afford the loan?
Great question Nathan, I think we all get a little bit apprehensive when we get a new loan.
It is very important for you to be comfortable in knowing you can afford the repayments and therefore difficult for anyone to completely reassure you. It is however worth noting from a finance perspective that all lenders are required to act in your best interest about the suitability of the loan and your ability to repay the loan.
As part of the approval process lenders are required to compete a serviceability assessment which takes into consideration the loan amount, the term of the loan, the loan to value ratio, your income, living expenses, number of dependents, other loans and any other commitments you may have and importantly the interest rate that calculates your monthly repayments.
Lenders will then look to assess your loan by applying a 3% increase to the interest rate relevant to the loan you are applying for. For example if the interest rate is 4.09% then the lender may assess your loan using an interest rate of 7.09%. By applying this buffer the lender is acting in your best interest to ensure the loan remains suitable should there be an increase in interest rates.
It is very important for you to make sure the loan you have been approved for has gone through the appropriate serviceability assessment. Don’t be afraid to ask your finance broker or lender for a copy to help you gain comfort.
Depending how you obtained the loan approval there are several ways to get some reassurance about your ability to afford the loan repayments. For example if you have used a experienced qualified mortgage broker they will have collected a great deal of information about your circumstances and should be able to explain the buffers the lender has put in place to ensure you can afford the repayments. Your mortgage broker should be able to explain this to you quickly and easily. If you went direct to a bank or online it can be a little more difficult since they may rely on average people or indexes or the information you entered which you may not have thought was important at the time. In this situation I would recommend sitting Dow with at least 12 month bank statements and adding these to a budget planner. There are several good free ones available on the Internet or you can simple create your own. From the twelve months statements add up all your expenses and then using your base salary/ income work out what shout be left. Take this left over figure as an annual number and divide it by 7%. This will give you a maximum loan amount with a buffer built in for interest rate rises all the way up to 7%. Your actual interest rate at the moment should be under 4.5% so again this is building some caution in. I hope this helps and congratulations on entering the to property market.
Awesome Albert. Www.awesomelendingsolutions.com.au
If you got your loan from a broker, them ask them to show you the affordable calculation they did on your loan.
Otherwise use a Budget Planner this calculator can help you work out your income and expenses and find out your financial position.
Hope this helps you.
Nathan C, you are he best benchmark for that question. Lenders make their own assessment based your income, fixed commitments and other lifestyle expenses. Every time you borrow money it will affect lifestyle so a good guide is what are you currently paying in rent and savings and if this is comparable to your new mortgage payment the it shouldn't affect lifestyle. Anything more than this you then need to determine whether you can adjust your lifestyle to accommodate. Cheers, Rob