​How much can I borrow? Working out a comfortable budget

By Steve Randall
When you’re planning to buy a new home it’s essential that you work out a realistic budget. That doesn’t just mean what you can afford based on your current circumstances but also allowing some margin of change.

The Reserve Bank of Australia recently voted to keep interest rates low (2.5 per cent) and suggested that they have planned some stability to those lower rates. That could mean that assuming there are no massive changes to the economy we might not see any rate rises at all until the end of 2015. However those lower rates won’t last forever and that’s something you should build in to your budget.  

When asking ‘how much can I borrow?’ it’s also prudent to allow for increases in other costs especially food and utilities. We know there are likely to be increases in gas prices for example. 

None of this is meant to scare you off buying that great home but rather to urge you to work out a budget that you can comfortably afford. When you find that dream home it’s easy to forget other things that are important to you. 

When you are completing figures on the home loan calculator it’s important not to overlook the non-essential expenses. If you love to eat out at restaurants, go to the theatre or indulge your passion for surfing then make sure you include those costs. That way you know what you can afford without having to give up your favourite pastimes. 

It’s in nobody’s interest for you to take on a bigger home loan than you can comfortably afford. Your lender and broker will work hard to get you the best deal and secure your loan so ensure you are giving them accurate figures. 

There are of course some ways to improve how your budget works for you. Make a list of all your outgoings and see if you can improve them. Some items on the list may actually be improved automatically by the move; perhaps the cost of getting to work will be lower; better energy efficiency could cut utility bills; maybe home insurance will be lower. All of these items need a bit of research but if you’re trying to improve your budget without any real pain then it’s worth making the effort. 

Next it’s worth checking through your existing expenditure to see how you can improve things. If you are paying too much for your mobile phone or broadband then consider making a switch to a better deal. If you have credit cards with a balance can you improve your budget by shopping around and transferring your debt to a cheaper lender? Are you eating out every lunchtime when you could take lunch with you to work? These are simple but effective ways to make smart budget changes. They are the kind of things you would be advised to do if you had financial problems but this approach is also highly effective to maximise your new home loan without cutting back the things that really matter.