High interest consumer loans have become a way of life in The Bahamas. Direct payroll deduction loans and car loans are far more common than home mortgage loans and are more than double the interest rate. Banks have made it tremendously easy for clients to qualify for high interest rate loans, which can leave young professionals and buyers in general with very high monthly payments exhausting their credit. This can eventually make it very difficult to qualify and obtain a home mortgage. When securing these loans to purchase cars, furniture or other items, you must bear in mind that all these fixed monthly charges will impact your ability to qualify for a mortgage to purchase a home.
If you are debt free, a bank will take into consideration your salary and general monthly expenses and may qualify you for a $300,000 loan. This amount is your buying power or bank credit. By not controlling your buying impulses and taking out high interest loans to purchase a fancy car or the modern new bedroom you always wanted, in the blink of an eye, you just may have blown your chances of owning your dream home or condo. Racking up high interest loans can cut your home buying power in half. How can this be possible?
Well, the bank considers how much debt you can service and a mortgage can be easily 50 percent less than these high interest consumer loans. So, if you have a $50,000 consumer loan, you could easily be paying a $100,000 mortgage. This is an expensive lesson that many of my young clients have learned. By not controlling their buying habits their credit has been misused by buying simple things like clothing, expensive cars or other such disposable items that quickly depreciate. These purchases have left them with no other option but to keep renting instead owning a home or condo.
If your goal is to own your own property, think before you spend. If you need a car buy a less expensive one or opt for a second hand. Better yet, buy a Hybrid that only costs 25 percent in import duty and saves you thousands every year in gas. Cut down on clothing and jewelry purchases and make sure you put away a portion of your salary every month in order to have enough money for a down payment and closing costs. Talk to your Bahamas Real Estate Association trusted real estate agent for advice. It is never too early to start planning your future.
• Carmen Massoni is president of Bahama Islands Realty and has 18 years of experience in the real estate profession in The Bahamas. She has been the recipient of many international awards recognizing her as a top producer amongst her peers. If you have any questions or need real estate advice, call 322-7770 or email Carmen@BahamaIslandsRealty.com.
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