Should you borrow more money just because you can?

Over the past few years borrowers have ridden the bank rollercoaster, but borrowers’ budgets are bound to increase under a proposed change announced by the banking regulator.

The recent borrowing capacity crunch brought on by increased scrutiny on living expenses looks set to ease, with the banking regulator (APRA) proposing to ease the interest rate borrowers are assessed at when applying for a loan.

This means a typical borrowers will be able to borrow more money.

But just because the bank may lend you more money than they would just a few short months ago, does that mean you should take them up on their offer?

You should plan for higher repayments

It’s easy to forget that a bigger borrowing capacity means bigger repayments.

You don’t want to be in a situation where you’re having to drastically change the way you live. So borrowers should base their budget on their ideal surplus cash flow and savings buffer.

You shouldn’t just be borrowing what a bank will tell you that you can borrow, you loan amount should be based it off your own personal family budget first and foremost.

If housing and discretionary spending take up the bulk of household income, little is leftover for savings. On the other hand, if savings in an offset account grow, this reduces interest payable, shrinks repayments and increases equity faster.

For many borrowers, it may be wiser to stick to a lower loan amount that you can afford when interest rate rise again.

Contact us today!

0400 449 135