When looking to purchase their own homes, buyers seeking a loan, ask "how much can I borrow?"
However, what should be asked is, "what's the most suitable loan solution for me?"
When a bank processes a home loan application they assess your current and future capacity to meet the repayments on the loan they may be seeking. .
Your borrowing capacity is determined by a few factors including:
- Your current income and future earning potential
- Any other financial commitments or responsibilities that you have, such as, monthly bills, dependents and other living expenses
- Your existing debts (personal loans, credit cards, store cards)
- Whether you're buying with someone or on your own
Importance of loan serviceability and equity
One of the most important considerations in a home loan is your contribution, i.e. the required deposit; what Banks' refer to as equity.
At BSP, customers are required to contribute 20% of the buying price as their equity. This initial contribution can be funded either by personal savings or through their housing allowance via Fiji's superannuation fund, Fiji National Provident Fund.
Also note the higher the equity, the less you have to borrow. This has many benefits; your repayments will be lower, the total interest paid will be lower, the whole loan will become less expensive for you.
You must also consider your ability to pay off the loan within the agreed term, referred to as loan serviceability. It is commonly thought that owning assets gives you more security and that increases their borrowing capacity, but this isn't always the case. Consider the case where one has $1 million worth of property and other assets and also large and/or numerous debts or other financial obligations. Servicing debts eats into your cash flow. This greatly reduces your ability to service other debts. Basically this means that given their current financial situation, they may not be able to afford to take on further debt as doing so my increase the risk of defaults.
What should you do?
The next step is to organize your paperwork and gather evidence of income (pay slips, Tax documents, and FNPF Housing eligibility statement), your most recent bank statements and evidence of other income (like shares or rent). With these in hand, you are ready to meet with a BSP Mobile Mortgage Specialist or BSP Personal Banker.
Talk to them about your dreams of owning your new home and investment property and be ready for a tailored solution that suits you.
Speak with a BSP Personal Banker at any branch to find out more or you could call their 24 hour customer care center on 132 888(local) or 679 3241 400(from overseas).