We Can Borrow More Now That Interest Rates Are at Record Low! Is This a Good Thing or a Bad Thing?


There's no doubt interest rates play a significant role when a lender assesses one's affordability to repay a loan. This simply means the lower the interest rate the more you can borrow. At such a historically low cash rate with lenders aggressively continuing to lower their interest rates, not only more & more potential borrowers' applications are being accepted, but also people with existing mortgages are now qualified to borrow even more money. Either way, that's - precisely - what banks are targeting for.

Don't get me wrong. I'm not opposing borrowing. Ironically I'm a mortgage broker who makes a living by helping people to borrow! In fact, this is amazing news for someone like Tim & Bec who have been longing to buy their first home and thankfully, at an affordable interest rate, not to mention the 50% stamp duty reduction taking effect as of 1 September 2014 there has never been a better time for these guys to fulfill their Australian dream.


Great news also for John & Jenny who managed to knock down their home loan over the years, build up plenty of equity in their home and now they're looking to - kind of - harness their equity to invest in a property, or three, as a road map to their retirement. That is fair enough given that Mr Jo Hockey seems to be adamant to work them to do death. With an improved borrowing capacity John & Jenny are now able to borrow funds to help them achieve their retirement plan.

Other people may not want to buy an investment property but still could take a great advantage of their improved borrowing capacity without extending their borrowing, by simply shopping around for a cheaper home loan among hundreds of hungry lenders who are prepared to do whatever it takes to pinch new businesses from other lenders. By doing this, these people could potentially save themselves hundreds, if not thousands of dollars. How good is that!

On the "not so good" side of things however, is what someone like Darren is about to do. Daza was over the moon when the bank told him they can and will top up his home loan so he could finally add a sparkling new $70k red SSV Commodore to his collection. Whilst there's absolutely nothing wrong with red SSV Commodores or with Daza or even with the bank, combining the three elements together can form a hazardous medium that would eventually cause undesirable ramifications which would essentially have a negative impact on Daza's financial position.


Sometimes we fail to understand that if the bank thinks we could borrow $70k, it doesn't necessarily mean we have to borrow the $70k.

Anyway... the moral of all this is; Now that we can borrow a lot more than before, let's borrow wisely for a justified need, not extravagantly for an inexcusable want.

And yes, unless you have $70k in cash, a red SSV Commodore is listed under "inexcusable wants".

Nader Awad

As a professional Mortgage Broker with extensive experience, helping people find the finance that suits their current and ongoing needs is what I do - whether you're looking at buying your first home, relocating or investing, I can help. And I can help you with a lot more than your home loan.

To learn more about Property Finance visit http://nwawad.blogspot.com

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