Don’t get caught short by low interest rates

With interest rates now at 2.25 per cent and talk of another strong year in the property market, you can see why prospective buyers might jump at the chance to purchase a new home or investment property.  I am very much of the view that the sooner you get into the property market the better however think before you leap and always borrow within your means. 

Prospective home buyers often get so excited about buying their own place that they forget about evaluating the future. They base their home loan on their current financial circumstances and don’t take into account their future plans like starting a family or allowing for the fact that rates will rise at some time in the future.

While rates are at historic lows now, it’s important to keep in mind that they won’t stay at these levels for the long term. I recommend that prospective buyers budget to make repayments at two per cent above current rates. There’s no downside to making repayments above your required level as it gives you a safety net in case of difficult financial times or allows you to pay off your mortgage sooner.

In contrast, borrowing to your maximum at this, or any, time is a recipe for disaster.

I recommend people follow my 20-25-20 rule if they want to avoid financial stress where you put down a  20% deposit, ensure no more than 25% of your income is required for repayments and have a loan term of no longer than 20 years.

If you want help working out just how much you could or should be borrowing to ensure you don’t put yourself under financial stress then just send me an email by clicking here and I’ll put you in touch with a fee for service Financial Planner who can help you.