How much can you afford to pay on your mortgage repayments?
An adviser can help you get an overview of your finances and make sure they’re ship shape before even submitting an application to a lender. As part of this process, we work out what you will be able to afford to borrow.
Most New Zealand home loans have a mortgage term of between 15 and 30 years. The loan is divided into equal amounts over the term, these are your repayments.
A portion of the repayment amount goes towards paying back the principal, the amount you borrowed, while the difference pays the interest charged by the lender.
The amount of interest you pay will depend on the structure of your loan: the interest rate, how long you fix that rate for, the term on your loan and whether you split your loan into different amounts. We will cover how to choose the best structure later on.
Let’s look at some numbers:
Say you’re looking to purchase a $450,000 house with 20% deposit. This leaves you with a home loan of $360,000.
Using current rates, over a 30 year term, your weekly repayments would be:
1-year @ 3.55% = $375
3-years @ 3.89% = $391
5-years @ 3.99% = $396
Whether that is an affordable figure (or not) will depend on other factors such as your income and other expenses. We can work that out with you, but $20 a week difference in interest can add up over the life of your mortgage, so it’s also important to decide what is affordable for your current circumstances and that it is affordable long term. We can help you determine what that looks like when we talk about your property goals.
The key to this part of the process is understanding the full financial picture, so that we don’t leave you short of funds to cover everyday living expenses. You still need a few bucks left over for throwing that housewarming party ?
(rates as of 2nd September 2019, source: goodreturns.co.nz)