Buying property is an exciting journey and personally rewarding.  Having a good deposit – the more savings or equity in other property you have is a bonus, but the reality is that most of us need to borrow money to achieve the property goal.

Being savvy can help you make decisions confidently so here are a couple of common questions I get asked.

Does A Cheaper Interest Rate Save You Money?

A loan that offers a honeymoon or introductory rate can be good but you need to check that it is structured right for you. The savings tend to be short-lived and once the honeymoon period ends, you could end up with a more expensive loan.

Checking that the overall interest rate compared to the loan term you are looking for and having a loan structure that is personalised to your situation is the smart way to go.

Different lenders have different offerings and an experienced broker knows the questions to ask and areas to exercise caution.  Then they can talk to you about your options.  If you already have a home loan then this is a good time to view your current lending but before looking at changing the comparison needs to include all the switching costs so that the decision you make, fits your plans.

Does A Lower Interest Rate Enable You To Borrow More?

You would think so right… but alas that is not necessarily the outcome.  Lenders use higher interest rates or “sensitised” interest rates to determine a client’s borrowing capacity.  The theory is that if rates increase over time you should still be within an affordable range to ride out the interest rate cycle.  So, the lower rate often has no impact on your ability to borrow more.

The same goes with the interest only verses principal and interest repayment debate.

With interest only, the principle and interest term are shorter – typically people take a 30 year with 5 years interest only.  So, at the end of the 5 years the repayments increase quite a bit.

During the interest only period, your repayment only covers the interest, so the principle amount you borrowed will not reduce so the overall cost of the interest may cost you more over time.

The other thing that can catch you out is not allowing for the increase of repayment when you go to a shorter term of principle and interest repayment.  Therefore, lenders take the change into consideration to determine affordability.

Is Borrowing Harder Because I Am Self-Employed?

Bank’s attitudes to business owners varies.  However, the key area’s is the ability to provide financial reports to demonstrate you can afford to meet your repayments.

There is money to be lent to clients who can show they can repay their debts, which is sensible and exactly what you want when investing in property.  Knowing you can afford your lending gives you peace of mind so that you can concentrate on doing what you do.

Each bank’s appetite varies depending on their portfolio, if they have a high exposure to a specific area or market they may avoid new lending to that area.  However, they may view a different market more favourable.

The repayment type can also make a difference.  As suggested above, most lenders want to encourage principle and interest loans so they are loading interest only repayments interest rates encouraging investors and home owners to take principle and interest loans.

In summary it’s safe to say that the current lending environment is focused on responsible lending, aimed at steering you towards principle and interest repayments that match your age verses retirement with the objective to avoid putting you under undue financial stress.

Like anything, knowing what to expect up front, looking at your options without pressure and doing your homework can make your decisions easier and your expectations realistic.

Wishing you prosperity, Lynne Sturgess Precision Loans – finance designed for you!

About Lynne Sturgess

Lynne has been in the finance industry for over 25 years. Lynne has worked in retail and commercial Banking, then for a major mortgage aggregator for 4 years training and coaching mortgage brokers from Brisbane to Cairns.

As a business owner, employer, mother and community member Lynne can relate to how finance can put stress on all areas of your life.

Community and family is important to Lynne and the team. Lynne is the President of the Redland City Chamber of Commerce and Redland Winners in Business, on the Redland City Council Tourism Subcommittee, a co-founder of Women in Building and Construction, active member of My Network Group, volunteer of Crime Stoppers, supporter of Worldvision, RSPCA, Spirit of the Dragonfly, Be a Hero, Swags for the Homeless, Fred Hollows Foundation and numerous other charity groups.

If you would like to speak with Lynne or the team please contact the office on 07 3171 2923 or visit the website.