- Home Loan Calculator #1 – Finding Your Borrowing Power
- Home Loan Calculator #2 – Knowing How Much to Borrow
- Home Loan Calculator #3 – Increasing Borrowing Power
- Home Loan Calculator #4 – Using Home Equity
- Home Loan Calculator #5 – Calculating Stamp Duty
- Home Loan Calculator #6 – Estimating the Loan-to-Value Ratio
- Home Loan Calculator #7 – Calculating Your Deposit
Buying a home is a big financial decision so if you’re not a mathematical genius, crunching the numbers can become a little daunting. So, how do you dodge those formulas, but still gain a solid understanding of your financial position? Here’s the deal: you follow a home loan calculator guide, just like this one, which includes some of the best home loan calculators on the Net.
Knowing how much you can borrow before you start searching for a home can save you a great deal of time, effort, and heartache. This situation is where a borrowing power calculator is ‘a must’. An efficient calculator will take your income, dependants, living expenses and credit card limits into consideration, along with any loan repayments. But here’s the kicker: this calculator will estimate how much a lender will let you borrow.
While a borrowing power calculator lets you know how much you can borrow, these often don’t consider unexpected expenses. Realistically look at your borrowing power and then ask yourself, “Can I afford this payment for the next 30-years?” If you’re not sure then use a budgeting calculator. This little gem allows you to calculate your annual income surplus, which acts as a mortgage buffer. Just remember, when you’re using this calculator make sure your ‘rent’ is the estimated amount of your mortgage repayment, as your rent payment will no longer be a consideration.
There are several ways that you can increase your borrowing power. Here’s the low down:
- Improve your credit rating – If you have an okay credit rating and you want to improve this so you can borrow more, then it’s time to get serious. Start by paying off any credit card balances and outstanding debt. Next, get a copy of your credit score, then review discrepancies and take steps to rectify these.
- Increase your earnings – By earning more you can increase your borrowing power considerably. According to data, as little as an extra $10,000 per annum, can add up to $50,000 in borrowing clout.
- Reduce your credit cards – By getting rid of your credit cards or reducing their limits you are not only reducing your debt, but you’ll also increase your borrowing power. What’s the bottom line? Well, lenders don’t just look at your credit card balance or spending patterns, they also consider the limit as this may compromise your ability to repay your loan. Typically, a lender will reduce your borrowing power by three times a card’s credit limit. For example, a credit limit of $15,000 will reduce your borrowing power by $45,000.
If you own a home or investment property, then you may be eligible for a home equity loan. This type of loan allows you to use the equity that you’ve built-up in a property to secure another property’s mortgage. If you have enough equity, then you won’t have to save for a deposit to buy the new property.
So, what features does a good home equity calculator include? Here’s the deal:
- The estimated property value.
- Your current mortgage balance.
- Your current interest rate.
- The remaining loan term.
- If the property is an investment.
- The rent the property collects.
Stamp duty is a state government tax incurred when you buy a home. This fee varies depending on the state of purchase, on your circumstances and on the type of property you’re buying.
By calculating how much stamp duty is payable for a property, you’ll be able to budget for this cost. Forgetting to factor stamp duty into your saving plan can cost you your dream of home ownership. Why? Well, you cannot borrow the stamp duty cost to buy a home, so you will need to save more to cover the expense.
There are many stamp duty calculators online. The best ones will allow you to enter the following details:
- The value of the property up to $3 million.
- Property location.
- Property type – established, new home or vacant land.
- Whether or not you’re a first home buyer.
- Property use – owner/occupier or investor.
The size of your home loan deposit in comparison to the value of your home is known as the loan-to-value ratio (LVR). This rate is a percentage of your home’s value. Ideally, to avoid paying Lenders Mortgage Insurance, you want to save at least 20% of your home’s value as a deposit. Using an LVR calculator will help you find out what your existing LVR is, based on your current savings.
The more significant your deposit, the less you’ll have to borrow. Plus, if you can save more than 80% of your property’s purchase price you’ll avoid paying Lenders Mortgage Insurance (LMI) or attracting higher interest. To estimate the size of your deposit first calculate your borrowing power, then times this by 20%. Write this figure down. Next, calculate the cost of your stamp duty based on your borrowing power. Then, add these two values together. This final figure is the amount you’ll need to save.
Speak with one of our home loan experts today and we can help you determine how much you can borrow and how much you will need to save. Our brokers have access to 100’s of home loan products, so we’ll find the right mortgage for you.