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Discover what house price

you can afford right now

Hi there,

 
Do you know the one thing which makes most "how much can I borrow calculators" inaccurate...if not completely misleading?
 
I'll tell you shortly, but before I do, I want to introduce myself.
 
I majored in economics and marketing from Swinburne University in Melbourne in 2011. I found my way into various jobs in the financial planning space. I'd be the one cold calling to set up the appointments for financial planners to see new clients. In exchange for me cold calling to generate new leads, the planners would teach me what they knew. It was a fair exchange and very exciting.
 
I loved getting to know someone. Finding out their goals and hesitations. Then having to think about what could improve their financial position. I'm not the kind of person who gets envious of the success of others. The more my friends and acquaintances achieve their goals, whatever those goals might be, the happier we all are.
 
The problem was, even though I quickly got close to new clients, which is great in order to help them, I also realised that ethically, I wasn't comfortable with some of the things the financial planners did. I'm not saying financial planners are dodgy, I just knew I'd need to find the right fit if I was going to continue along that path.
 
One day I was sitting with a senior financial planner. He was showing me the most important topic, for the majority of people. It was getting their mortgage sorted. Getting the home loan settings right was the most important part of the financial plan. He meant home ownership.
 
Having a home completely paid off by the time you're 60 or 65 makes a massive difference to your financial security. Then not long after that I had to move back to Adelaide because my Dad was passing away.
 
While Dad was in hospital I realised that it was a lot cheaper to get set up as a mortgage broker than a financial planner. I did the training and carefully chose an aggregator so I was going to be completely free to set my own targets.
 
While I don't have a license to give full financial planning advice, as a mortgage broker, there's a lot of value in helping someone sort out the home ownership side of their financial reality.
 
This brings me back to your question, "What house price can you afford?"
 
As a mortgage broker, there's an incentive for me to answer the above question with "as much as you can". Yet the same is true if you walk into any bank. A lenders net interest margin ( = profit margin), is related to the size of the mortgage you take out. This is what the Banking Royal Commission has been about.
 
The answer though, is also important.
 
It can mean the difference between marriages breaking when interest rates rise, homes being ripped from families and people committing suicide, or sailing along as usual because they were prepared, or even taking advantage of buying opportunities.
 
So what house price can you afford?
 
It comes down to two things.
 
One, is how much you can afford to repay each month.
 
Two, is using a mortgage stress calculator.
 
What's the one thing how much can I borrow calculators usually don't talk about? = mortgage stress testing.
 
If a repayment calculator says you can borrow $500,000, but the figure hasn't been stress tested at a high enough interest rate, there's a good chance it's not accurate.

 

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