What You Can Borrow vs. What You Should Borrow

As health professionals, you understand the importance of making informed decisions, just as you do in your practice. When it comes to obtaining a home loan, the amount you can borrow and the amount you should borrow often differ significantly. It's crucial to realistically assess your financial situation before making a major financial commitment.

Here's how to ensure you're making the right decision:

Step 1 - Understand Your Borrowing Capacity

Your borrowing capacity depends on several factors, including:

• Your income, including any additional earnings from overtime or private practice
• Your monthly expenses, which may fluctuate due to professional development or medical association fees
• Existing debts, including substantial student loans
• Saved deposit amount, considering any investment returns
• Current interest rates, which can vary with economic conditions
• Type of loan you are considering
• Whether it's a principal-only or principal and interest loan
• Loan term and how it aligns with your career plans
• Estimated repayments and how they fit within your budget

Understanding the distinction between what you can borrow and what you should borrow is vital. As a general guideline, it's not advisable to allocate more than 30% of your monthly household income to home loan repayments, allowing you to maintain a comfortable lifestyle.

Step 2 - Build a Budget

To determine your realistic borrowing limit, start by creating a comprehensive budget and sticking to it. This should account for both your personal and professional expenses. Knowing what funds are coming in and going out will help you assess how much you can afford to repay, and thus, what you should borrow. If creating a budget seems daunting, consider seeking assistance from a financial planner experienced in the unique financial situations of health professionals.

Include these expenses in your budget:

• Council rates and any applicable medical practice fees
• Body corporate fees (if applicable)
• Insurance costs, including indemnity insurance
• Maintenance costs for both home and practice
• Utility bills and estimates for any equipment in your practice
• Estimated groceries, balancing time between work and home
• Medical bills, personal health fund payments, and professional memberships
• School fees for children, factoring in education as a long-term plan
• Phone and internet costs, essential for staying connected with patients and colleagues
• Petrol and transport payments, especially if commuting for work
• Entertainment, travel, and clothing, ensuring a work-life balance
• Other loans or credit card debts

Step 3 - Future-Proof Your Figures

Leave some flexibility in your budget for potential changes in circumstances. As health professionals, unexpected events like job loss, illness, or rising interest rates could affect your ability to make repayments. Consider other factors: Is your income likely to increase with additional qualifications or promotions? Do you plan to have children, which might temporarily reduce your working hours? Are you nearing retirement and considering a more flexible work schedule?

These are personal questions that will influence how much you should borrow. Remember, lenders inform you of how much you can borrow, but you know your situation best. It's up to you to decide how much you should borrow. For personalised guidance, consider consulting a mortgage broker who understands the financial intricacies faced by health professionals in Australia.

By taking these steps, you can make a well-informed decision that supports both your financial health and your professional commitments.