If you’re wondering about your borrowing limits, we’re here to help. As mortgage brokers, we delve into several key factors to give you a personalised assessment. Check out
What is the maximum amount I can borrow? Your Guide to Borrowing Smart
When advising a prospective borrower on the maximum amount they can borrow, as a mortgage broker we consider several key factors and provide guidance on the following points:
- Income and Employment
- Stable Income: Consistent, verifiable income from employment or business.
- Additional Income: Include bonuses, overtime, rental income, and other regular income sources.
- Employment Type: Full-time, part-time, casual, or self-employed status and job stability.
- Expenses and Debt
- Living Expenses: Monthly costs for living, including utilities, groceries, transportation, and other essentials.
- Existing Debt: Current loans, credit card balances, and other financial obligations.
- Debt-to-Income Ratio (DTI): Percentage of monthly income used to pay debts.
- Credit History
- Credit Score: A higher score indicates better creditworthiness.
- Credit Report: History of repayments, defaults, and credit inquiries.
- Deposit and Equity
- Deposit Amount: Savings for a down payment, typically 5-10% of the property value.
- Equity in Property: If refinancing, the equity in the current property.
- Property Value and Type
- Valuation: Independent valuation of the property.
- Property Type: House, apartment, investment property, or primary residence.
- Loan Product and Features
- Interest Rates: Fixed, variable, or split-rate options.
- Loan Term: Typical term is 30 years.
- Repayment Options: Principal and interest (P&I) vs. interest-only (IO) repayments.
- Offset Accounts and Redraw Facilities: Availability of features that can reduce interest costs.
- Financial Buffers
- Savings Buffer: Emergency fund to cover unexpected expenses.
- Interest Rate Rises: Consideration of potential increases in interest rates and their impact on repayments.
- Government Schemes and Incentives
- First Home Owner Grant (FHOG): Assistance for first-time buyers.
- Stamp Duty Concessions: Discounts or exemptions for First Home Owners (FHO).
- Home Guarantee Scheme: Government-backed schemes for certain borrowers.
- Lender Policies and Criteria
- Lending Criteria: Varies between lenders, including serviceability assessments and lending limits.
- Lender’s Mortgage Insurance (LMI): Generally required if borrowing more than 80% of the property value, adding to the cost.
- Future Financial Plans
- Long-term Goals: Plans for career, family, and retirement.
- Potential Changes: Anticipated changes in income, expenses, or lifestyle.
Calculation Example
Loan to Value Ratio (LVR): Lenders usually lend up to 90%-95% of the property value, with LMI required for higher LVRs. For example, if the property has a purchase price of $800,000 and the borrower has a 5% deposit of $40,000 and are exempt as a FHO, they could potentially borrow $760,000.
Serviceability Calculations: Lenders assess the ability to service the loan based on current and potential future interest rates, using a buffer (typically 2-3% above the current rate) to ensure affordability under varying conditions.
By considering these factors, a mortgage broker can provide a comprehensive and personalised borrowing capacity assessment for prospective borrowers in Australia. Unlike banks, which are not obliged to offer alternatives and act primarily as sales agents, mortgage brokers operate under a credit license, adhering to Best Interest Duties and the NCCP Act.
Banks can only offer their own products and often have interest rates for new customers that become less competitive over time. Mortgage brokers, on the other hand, can explore a wide range of options to find the best solution for you.
Did I mention that working with a mortgage broker is free?
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