Calculating The Affordability of Your Home Loan

How much should you take a home loan for ? Generally the banks will give you around 20 times of your monthly gross income but should you take the full amount that you are entitled to ? Here are a few points to consider before making that decision.

Before deciding on the amount for your home loan look at the possibility that your monthly income may fluctuate in the future. It is unlikely that your salary will decrease but you might be placed in an unfortunate position where you are retrenched and have to take a new job with a possible lower starting salary. If you are self-employed or work on a commission basis you may go through periods where your income may be substantially less than usual and this should be kept in mind when deciding on the amount of your home loan.

Unless you have a home loan that has a fixed interest rate for a certain period, your home loan may be subject to future interest rate increases. The vast majority of bond foreclosures occur during times when interest rates are high and monthly installments become unmanageable. Consider taking a lesser amount on your home loan than what you can currently afford to cover for possible future interest rate increases.

Your expenses may also be much more in the future. Account for future expenses such as school fees and university education for your children, repairs to your home and vehicles as well as increases in levies or rates. All these points make a good argument for taking out your home loan for an amount less than you can currently afford and thereby covering for future fluctuations in your financial standing.