The lingering debt can make the difference between getting your own place and staying in the rental sector
“My student loan knocks 40,000 off how much I can get on a mortgage,” my friend said. I nearly fell off my chair. Nearly every young person with a student loan has been indoctrinated by the mantra that the debt is the cheapest you’ll ever have and so does not matter too much – it is worth it, because you need a degree.
Unfortunately that nugget of received wisdom is only half-true. Sure, at its peak the interest on my student loan was 4 per cent, a competitive rate in the world of 10,000-plus loans. Yet the debt does matter, and as long as you’re in a job that pays more than 17,495 (or 21,000 for those who started university after 2012), you will have to put 9 per cent of your salary towards repayments.
You might want to have a beautiful home constructed for yourself with the help of a townhouse builder Melbourne, if that’s where you are. Taking on such an endeavour necessitates you to be financially prepared as the design options you choose can contribute to the money spent towards your home. That being said, most of us are blithely unaware that when it comes to buying your own home, those monthly repayments can take a chunk out of how much you can borrow.
While it is true that an existing debt can lower the amount you can borrow, you could still consider working with a team of experts with extensive knowledge of the mortgage market place, if you wish to secure funds to buy your own house. Additionally, they might be able give you financial advice and connect you to lenders who are willing to give loans even to those with a not-so-perfect credit score.
However, a straw poll of my peers, all squirreling away money for a deposit, confirms that often debt does matter. The situation is slightly different for the generation who have taken loans of up to 14,000 a year, because they may never pay it off. For people in their early thirties with 5,000 to 10,000 outstanding, it’s a conundrum.
It’s easy to let the student loan take a back seat when you’re trying to save for a deposit. However, banks and building societies have to take into account regular outgoings such as council tax, travel costs and your student loan when you apply for a mortgage. The higher your outgoings, the less they will lend you, so can you imagine how much you would be entitled to if you’ve trained to be a doctor or dentist? It definitely won’t be a lot because their student loans will be sky-high, so it’s a good job that mortgage loans for physicians exist as this will make the whole process of obtaining a loan for a home much more straightforward. But the thought that having a high-paying job could affect your ability to get a home is just unthinkable. Put it this way, that 250 a month on the student loan is 250 that you can’t put towards a mortgage.
This also means that financial feasibility would reduce, as would the general purchasing power of a student loan debtor. But there may also be other economical ways to finance a home. When using wholesale mortgage banking florida (if that’s where you are), there could be a lesser impact on debts due to easier terms and rates. And for people buying alone, those with small deposits and without parental help, it can make the difference between getting your own place and staying in the rental sector.
“For higher earners, who are paying back 200, 300 or 400 a month, that is a big financial commitment and can easily reduce the amount you can borrow by tens of thousands,” says Aaron Strutt, a mortgage broker at Trinity Financial.
Many finance experts say it is not worth trying to pay down student debt. They argue the interest is low and rises with inflation, so in real terms the debt pile does not increase. If you are canny, you can make more from the interest on several savings accounts than you will be charged as interest on the debt. Moreover, the student loan isn’t taken into account when lenders look at your credit rating.
That is true, but letting the debt linger means you will pay back more, because of the interest.
Repayments depend on which year you took out the loan, but generally someone earning the average wage of 27,000 will have 71.29 deducted each month – a sum that won’t make much of a dent in your bank balance, nor your debt. Keep making the minimum payments and you will still be paying your student loan well into your thirties and forties, when you will be itching to put down roots. If all goes well, you will be earning more too. Someone on 60,000 pays back 318.79 a month.
There are some things you can do. Weigh up whether paying off the debt from savings will help you to save towards a deposit, or get you a larger mortgage, or whether it makes more financial sense to get on to the housing ladder first, and then tackle the debt.
“Pay it off. It will haunt you,” an older colleague said to me six years ago. I now realise what she meant.
