How Much Should You Borrow?

You High mortgage default numbers particularly in Sydney’s western suburbs and the international stock market fallout from the US sub-prime mortgage crisis has put irresponsible lending practices under the spotlight. So what actually is a safe amount to borrow for your mortgage?

Lenders can offer you a larger loan than you would feel comfortable with, but rather than getting excited at the prospect of being able to afford a nicer home, think practically about the drain it will take on your combined household income.

Consecutive rate rises have proved inevitable in the last few years, rising from 5.25% at the beginning of 2005 to their current level of 7%. Every rise of 25 basis points (or .25 of a percent) represents an increased monthly repayment of $50 per month on the average Australian mortgage.

The Australian Securities & Investments Commission (ASIC) suggests you could be overstretching yourself if your total repayments take up between one third and one half of your take home pay. Keeping it under one third is a safe bet.

So keep the dream of the beachside mansion for the future if all you can practically afford now is a two bedroom apartment.
Bear in mind that any existing debts you have in credit cards and personal loans will also reduce the amount that you can borrow for your mortgage.

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