Budgeting and planning ahead for homebuyers

It’s a huge deal to take on a loan so you can buy a home or investment property. All that debt can feel slightly overwhelming. Want to know how to plan to take on only what you need and protect future you? Keep reading for our top three on managing home loan debt.  

1. Know your long haul budget

When assessing your ability to repay a home loan, it’s important to position your thinking not only in terms of what’s going on right now in life, but what could happen in 3 to 5 years or further from today. You may bring someone new into the world, you could stop working altogether, or you may become unwell for a time. 

Budgeting to allow for change while being able to comfortably meet your new financial commitments is a normal and essential part of the process. 

Why don’t you try? 

• Have at least 20% of the property’s value as your deposit. The higher the deposit, the lower your repayments over the life of the loan. Plus it means you may avoid the extra cost of Lender’s Mortgage Insurance (LMI).
• Calculate your repayments not just on today’s interest rates, but on higher rates. The banks can change rates whenever they wish to, and unless you’re locked into a fixed interest rate, it means your repayments could go up at any time. Try calculating repayments on an interest rate higher than what you have. Would you be able to still comfortably make your repayments?
• Avoid corner cutting and making assumptions about your money. Get a full picture of your financial position. You might want to set a budget or review your accounts to see where your money goes. And if you’d like more personalised advice seek the assistance of a financial advisor. 

2. Be realistic about your wishlist

From where you want to buy to the essential bones that you’re happy to build upon, you’ve no doubt written a wishlist of considerations for your perfect property purchase. When used wisely, wishlists are a mighty tool for savvy homebuyers keen to set a realistic buyer budget.

Take the property’s location as a prime example. You may have your heart set on an apartment in a trending suburb that’s selling at rates outside your comfort zone. Do you extend yourself or look elsewhere?

The short answer is that if you feel stretched from the get go, things could prove challenging almost straight away. While you may be in the exactly right spot, if you can’t do life as normal – whether that’s your typical grocery shop, annual holiday or taking care of your health – is it really worth the ‘perfect’ location? 

Come at it with a different mindset 

• Ask yourself whether rigid thinking, high emotions and the views of others are getting in the way of your decision making. Is anything that has the potential to blow out your budget essential in the scheme of things?
• Take all the elements of your wishlist and cut them into must haves and nice-to-haves. Perhaps all the must haves of that ‘ideal’ suburb are right there at a cheaper average price in the next suburb along?
• Get advice from a range of sources. Walk the streets, hit the local cafes and download free property reports providing insights into neighbourhood trends and prices. The more you know, the more it will help you to negotiate price and not be tempted to go over your head.   

3. Protecting yourself  

Buying a home is a most common reason why people take out life insurance. Even though you may have done everything in your immediate power to buy affordably, unforeseen roadblocks such as injury or illness could get in the way of being able to meet your everyday living expenses and/or your financial commitments.  

While the banks may be able to assist you with a hardship variation (which you can read more on here), it’s never a done deal, and it only defers your debt rather than helping you pay it off. Life insurance benefits on the other hand can be channelled into where they’re needed; from making home loan repayments to paying for medical bills, education and other everyday household expenses. 

Insurance - Not just another expense

If you’re unwell and having treatment, or you’re injured, or worse, you want to have clarity on the cover you have. A life insurance claim payout can be life-changing (consider the impacts for everyday Australians).

So, it pays to get informed. Understand what you might already have in place and what is being offered. You might also if there are associated programs that might help with affordability, such as ALI Group's Extra Benefits that provides discounted gift cards for use at a range of supermarkets, movies, hardware stores and other mainstream retailers. 

Maintain independence and agency

There’s always the option to sell your property or get help from family if anything was to happen to you. But insurance could add that extra breathe-easy factor so you can independently navigate life on your terms. 

Here’s a firsthand experience:

“We had it for two years and were thinking, when are we going to need this?…You just don’t think something like this is going to happen to a young family – but it did. If we had cancelled the policy, we would have been in a lot of trouble financially”. – Anna and Joel, Aussie and ALI Group customers.

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Read about buying property and the fundamentals of insurance.