Once you have worked out why you are buying, how long you would like to take your home loan out for and how much you can repay, you can also work out how much interest you are willing to pay for a property.
Yes, that’s right! Ask yourself, how much interest do I want to pay on this home loan?
Do you want to pay under $50k in interest, or under $70k, under $100k? How much are you willing to pay?
You may find that when you look at the figures for how much it will actually cost to borrow money, the amount of interest you end up paying may be more than you are willing to pay.
Think about the value of the property you would like to buy, the amount of money you are borrowing, how long you would like to live there, and how long it will take for you to repay.
You may not be willing to pay much interest on your first home (so that it allows you to pay your loan off faster and move into your favourite location sooner). On the other hand, you may be willing to pay a little more interest for a property that you know you will be living in for a longer period of time.
If you are purchasing a home that is only a stepping stone to another property, aim to pay a low amount of interest (e.g., under $50,000 or under $100,000), and aim to pay it off over the shortest time frame possible.
On our first home, we aimed to pay approximately under $50,000 in interest in those five years.
The amount you are willing to repay in interest, and how long you would like to live in a property for is up to you. Only you can decide this, and only you know how much you can comfortably repay in that time.
If you’re not sure how much interest you want to pay, don’t worry, we’ll get to that in the next blog post.
In the next blog post we will start to use our very own Reverse Home Loan Calculator that helps you to think about home loans in reverse. This calculator can help you to decide how much you want to borrow and gives you the total interest you will pay over the life of the loan and the downloadable version also gives you the amount of interest you pay in the first week, month and year of the home loan.
Use this calculator to help you decide how much you are willing to pay in interest, then play around with the calculator; for example, how much is the total interest if you took one year less to pay off your loan, or one year more? How much less or more would it cost you in interest?
Let that help you decide what you are comfortable repaying in interest.
In the meantime, write a rough number of how much interest you think you would be willing to repay and write that amount somewhere before you start calculating.
If you are still not sure, let’s move straight to the next blog post.
Ohhh, this is exciting! The next blog post is my favourite, it’s what this blog is all about.