A car or a mortgage – how will this affect me?
I often get asked: ‘If I buy car, a couch using finance, or max out my credit cards on a holiday can I still get a mortgage?’
Short term debt comes in different forms:
- credit cards
- personal loans
- vehicle finance
- store cards
- short term loan terms
- or finance with high interest rates
The amount of short term debt you have can most definitely challenge your ability to get a mortgage as it can affect the servicing of that mortgage, something which banks take seriously into account. The good news is, there are also other factors involved. As an example, a lender will also take into account:
- how much income you have
- how much deposit you have
- how much the debt is
- and how it was accumulated
because there is more to doing the numbers than just one part of the equation.
A number of people trying to get a house and a mortgage don’t realise that the servicing of short term debt such as that mentioned above, can affect your ability to service a mortgage as most lenders have a different affordability calculator and servicing rate and therefore your maximum mortgage number is calculated differently.
Sound overwhelming? Don’t fret! That’s where I can help.
In my capacity as ‘The Smarter Mortgage Lady, I have helped a number of people with short term debt, buy a home. Consolidating short term debt might mean that you can afford the house you want and can get the maximum mortgage you need to do it, but it can mean you pay more for the short term debt in the long run.
Using savings to pay off short term debt may mean you don’t pay more for the debt when you get a mortgage, but may affect your ability to buy a house as it will reduce your deposit.
To help you out, here’s some tips and tricks from me!
Tips and Tricks
- Try to avoid the build up of short term debt
- If you have short term debt, work on paying it off as fast as possible
- Put a plan in place to prevent any new debt and increase savings
- Set goals around your spending such as less nights out or reduce the number of takeaway coffees you buy
So just remember, just because you have short term debt it doesn’t mean you cant buy a house or get a mortgage. Just talk to me – the Smarter Mortgage Lady – let’s run the numbers to see if we can make it work for you.
e: rachael@ilg.co.nz
