Although borrowing as much as possible may seem easier in the short term, it can draw out your home loan term and affect your future financial position.
Should I Borrow as Much as Possible?
Question: A friend once told me that to get ahead was to get as big of a mortgage as possible to buy the nicest house imaginable and then reap all those capital gains. Is this a good idea?
Prior to the Global Financial Crisis a lot of people had surefire ways to get ahead. Gearing was typically at the forefront of the strategies. That is to say that got ahead by borrowing a lot of money, putting it to use allowing the investment to pay for the borrowing. What your friend has in mind is doing that with your home as the investment and the mortgage providing the gearing.
It had great potential. It was risky and for some, it came crashing down. When it comes to your home you especially want security. That means that you’re going to want to borrow within your capacity to repay. Keep in mind that when you are being assessed by a lender with regard to your borrowing capacity, they have one concern, will you be able to keep up with the repayments?
Apart from that they would like to lend you as much as possible, they would end up making more money. So the lenders’ concern is your concern. Because of this, it would be very unwise to shop around just to see who would lend you the most.
If several lenders are giving you a lower limit, that’s worth listening to.