According to Macquarie Group interest rate strategist Rory Robertson, you should at least put 2 percentage points buffer on your home loan interest when you buy your dream home.
”Indeed, another 2 percentage points worth of higher mortgage rates over the next couple of years wouldn’t surprise,” he said.
The Reserve Bank today released the minutes of its April monetary policy meeting when it decided to lift its key cash rate for the fifth time since October, indicating that the door remains open to another rate increase in May.
The point is if you don’t put a buffer, you might not be able to afford your house anymore after a few years. You have to think and plan carefully before you buy any property. I would suggest you should calculate your affordability based on the current interest rate plus at least 1.5%.
To see what you can afford, download the free How Much Can I Borrow Calculator now at Investment Property Calculator.
Here is an example. On a $300k 30 years home loan with an interest of 6.4% (current), your monthly payment is $1,898.14. With 2% increase in rate, you will have to pay $2,303.28 monthly. The difference is more than $400 per month.
You can try other scenarios with the free home loan repayment calculator. It even calculates honey moon rate.