HOW TO INCREASE YOUR BORROWING CAPACITY
Banks have tightened their lending criteria since the last APRA changes in late 2015. It can be frustrating for those looking to get into the market and for investors who struggle to source finance for their next deal.
Here are some ways that we’ve helped clients increase their borrowing capacity.
1. Reduce your unwanted credit card limits. Most people have limits way beyond what they use and reducing these and cancelling unwanted credit cards can really make a difference to borrowing capacity.
For e.g. reducing your credit limit by $10,000, will increase your borrowing power by $35,000
2. Consolidate unsecured debts. (like car, credit card or personal loan debt) into your mortgage (as long as you have sufficient equity). By doing this, you will improve your monthly outgoings quite dramatically and therefore improve your borrowing capacity.
3. Use the right lender and loan. This is where a mortgage broker is very handy. All lenders have different lending criteria and serviceability calculators and a mortgage broker has knowledge of which lender and even which loan can improve your borrowing capacity. The difference between lenders and loans can make or break a deal in many instances.
4. Find a more competitive product. Your mortgage broker knows what is possible with most lenders and can apply for special pricing for you in a lot of instances. If your monthly repayments on existing debt are lower, your borrowing capacity will be higher with a lot of lenders.
5. Keep your financials up to date. By getting your tax returns done on time (if you are self-employed), then you will have a better opportunity to borrow when you are ready to buy. If you are PAYG, then have your latest Payment Summary as well as the latest 2 payslips ready as this more accurately shows your annual income.
6. Fixing loans. When assessing your borrowing capacity, all lenders will add around 1.5% – 2% to the variable interest rate of the loan that you’re looking to take out. This is their way of working out whether you can still afford the loan if interest rates go up. On the flipside, if you were to opt for a fixed loan then some lenders will assess your capacity on this rate (or this rate with a small increase of around 0.5%). This can make a significant difference to your borrowing capacity.
7. Other tips:
Salary/Business Increase the average income earners salary by $10,000, will increase your borrowing power by $75,000.
Rental: For the average income earner, a $10,000 increase in rental income will increase your borrowing power by $50,000
Obtaining a novated car lease for a $20,000 vehicle that includes all running expenses instead of a personal or car loan will reduce your servicing by $40,000-60,000
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