A home with more outdoor space can cost more to buy and to run, so your loan needs to be set up for that from day one.
If you are an educator looking at a house with a yard, a bigger block or room for the kids and the dog, you are probably asking one thing. Can I afford it, and what should my loan look like? This article answers that without fuss.
How Much Can I Borrow for a Home With a Bigger Block?
Your borrowing amount mainly depends on your income, expenses, debts and deposit. Block size does not change the affordability test, but a very large block (for example, acreage or rural-residential land) can change the lender's security policy. That can mean a lower maximum loan-to-value ratio, a larger deposit, or no LMI. Check the lender's land-size limits early.
What the yard often changes is the price. Houses on larger blocks, or further from the city, can sit at a different price point to units or townhouses. That is why it pays to know your number before you inspect anything. Our borrowing capacity calculator gives you a starting figure, and a broker can then check it against how different lenders assess your pay.
Teachers often have steady, permanent income, which lenders usually like to see. Casual and contract educators can still borrow, but lenders may want to see more payslips or a longer work history.
Does Pre-Approval Help When You Are Chasing a Specific Property?
Yes. Home loan pre-approval tells you roughly how much a lender is willing to lend, so you can shop within a realistic range. It is not a final offer, and it can lapse or change if your finances or the lender's policy change.
The trade-off is that a lender will check your finances properly, which takes some paperwork and leaves a record on your credit file. Our page on getting loan pre-approval explains how that works for teachers.
Consider a buyer who is a primary school teacher and falls for a house with a big backyard at auction. Auctions are unconditional and have no cooling-off period. Pre-approval is conditional on the lender's valuation and on your circumstances staying the same, so it is not a guaranteed ceiling. The buyer should ask their broker about unconditional approval or a valuation check before auction day. They should also set their own limit below the pre-approved amount, leaving room for stamp duty, legal fees and other costs. That way the decision is made calmly in advance, not under pressure.
Principal and Interest or Interest Only on a Bigger Home?
For an owner occupied home loan, principal and interest is the usual choice because you pay down the loan as you go. Interest only gives lower repayments for a set period, but you do not reduce the loan balance during that time.
Here is an illustrative example using a rate of 6.75% p.a. On a $700,000 loan over 30 years, interest only repayments would be about $3,938 a month, since $700,000 x 6.75% / 12 is $3,937.50. Principal and interest on the same loan over 30 years would be roughly $4,540 a month. The gap is about $600 a month.
The catch is what comes after. If you took five years of interest only, you would still owe $700,000, and the repayments would then be recalculated over the remaining 25 years. At the same 6.75%, that comes to roughly $4,836 a month, which is higher than the 30-year figure. Interest only can help in a tight stretch, but it costs more over time. Our page on interest only loans for teachers covers when it may suit.
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Variable Rate, Fixed Rate or Split Rate: What Suits a Bigger Home?
A variable rate moves with the market and usually allows extra repayments and an offset account. A fixed rate locks your repayments for a set time, but often limits extra repayments and can carry break costs if you leave early. A split rate puts part of the loan in each.
If a larger home stretches your budget, a split can give you some certainty on part of the loan while keeping flexibility on the rest. The trade-off is that the fixed part may not give you the same features, and you could miss out if variable rates fall. Lenders and rates differ, so compare options before you commit. Our mortgages for teachers page is a good place to see what is on offer.
Using an Offset Account to Cover Running Costs
An offset account is a transaction account linked to your loan, and the balance reduces the interest you are charged. It suits buyers who want to keep savings handy for things like fencing, tree work or a new mower.
The cost is that loans with offset accounts can come with higher rates or annual package fees, depending on the lender. It is worth checking whether the saving in interest outweighs those costs for the amount you would actually keep in the account.
Can You Avoid Lenders Mortgage Insurance on a Home With More Land?
Sometimes. Lenders Mortgage Insurance (LMI) is usually charged when your deposit is under 20% of the property value, but some lenders waive it for certain professions, including teachers, under their own policies. On very large blocks, LMI may not be available at all.
These waivers have conditions, and the lender may set a different interest rate or limit how much you can borrow. Read the terms before you commit. You can see how this works on our LMI waivers for teachers page. Government schemes may also help with a smaller deposit, but eligibility rules apply, so check the details with a broker.
If you are also working out how a larger property fits with your wider plans, a broker can run the numbers on a few different structures side by side.
Talk to a mortgage broker for teachers who understands how educator pay and leave patterns work. Call one of our team or book an appointment at a time that works for you, and we will look at home loans for teachers that suit the home you have in mind.
Frequently Asked Questions
Does a bigger block affect how much I can borrow?
Not through the affordability test, which looks at your income, expenses, debts and deposit. But a very large block, such as acreage, can change a lender's security policy, which may mean a lower maximum loan-to-value ratio or a larger deposit. The block size also affects the price, and so how much you need to borrow.
Is interest only a good idea for a home with a big yard?
It lowers repayments for a set period, but you do not pay down the loan during that time. When principal and interest starts, repayments are calculated over a shorter remaining term, so they can be higher.
What is a split rate home loan?
A split rate loan puts part of your loan on a fixed rate and part on a variable rate. It gives some repayment certainty while keeping some flexibility, though the fixed part may have fewer features.
Can teachers avoid Lenders Mortgage Insurance?
Some lenders waive LMI for teachers under their own policies, even with a deposit under 20%. Conditions apply, and very large blocks may be treated differently, so check the terms with a broker.
