4 Factors To Boost Your Borrowing Capacity - December 2022
December 20, 2022 / Written by Rich Harvey
By Guest Blogger, Louisa Sanghera, Principal Broker,
With interest rates returning to their pre-covid levels right as property values are stagnating, many investors are thinking twice about investing in property right now.
You may be worried about borrowing money for property investment or to upgrade your home because you’re unsure if you can afford any future rate rises. Or, you might still be catching up on the 8 rate rises we’ve had this year already, and you’re deep diving into your finances to ensure you can afford your existing commitments.
Whatever your situation, you don’t need to navigate this alone. By working with a mortgage broker, you can get a finance professional on-side to help you get an understanding of your overall property and finance situation.
A Mortgage Broker can help you with a range of things that can help you not only get your finances into shape, but that can also help you boost your borrowing capacity if you wish to invest in more properties in 2023:
Factor #1: Review your current situation
The first thing you want to do is assess your current loans to make sure you’re not paying more than you need to pay. There is a lot of competition in the mortgage market right now and it could be possible to save 0.25%-1% off your loan or more - not to mention the cashback offers that are available.
A broker can review the options on your behalf to help you reduce the interest rate you’re paying and therefore your repayments.
This has the added benefit of reducing your overall debts in the eyes of the bank, thereby increasing your borrowing capacity.
Factor #2: Reduce your credit card limit
Did you know that it’s the limit on your credit card, and not the amount of debt outstanding, that banks and lenders consider when reviewing your application?
So, if you have a credit card limit of $20,000 but you only owe $1,000 on it, the bank will consider that debt as if you owe $20,000. This is because you have the option to spend up to your total credit limit whenever you like – so the bank treats you as if you’ve spent the maximum.
Reducing your credit card limit by just $5,000 can add up to $25,000 to your borrowing power (and it also reduces the temptation to spend!).
Factor #3: Consolidate high interest debts
If you have multiple debts to manage, such as a car loan, a personal loan, credit cards, a store card and some buy now pay later debt, this can impact your ability to get a home loan. The bank wants to see that you’re diligent with money and that you can afford to take on the responsibility of a new mortgage, and multiple personal debts can give them reason to be cautious.
Also, all of these debts come with minimum repayments, which can eat into your income and reduce your borrowing power.
By consolidating all of your personal debts into one facility, such a low-interest personal loan or even into your owner-occupier home loan, you can reduce your monthly outgoings, lower the amount of interest you pay and boost your borrowing power all at once.
Factor #4: Assess your household budget
Another way to increase your borrowing power is to reduce how much you’re spending on your household bills. Every dollar you can save on things like electricity, phone bills, internet and insurance is an extra dollar in your “disposable income” bucket, which the bank considers when deciding how much they’re comfortable lending to you.
You could also consider reducing or cancelling subscriptions like gyms, TV streaming, music subscriptions and other software programs that you no longer need. A quick audit of your bills and comparing cheaper options could help you save hundreds or even thousands of dollars per year, putting more money in your pocket to help you achieve your property investing goals.
By following some (or all) of the above steps, you get on top of your borrowing capacity and present yourself to the bank in the best possible light. If you’re interested in learning more about what your options are and how we can help you when it comes to accessing equity and investing in property, contact your broker today.
To see what your options are, contact a Mortgage Broker to see what your options are.
Contact us today on 1300 855 022 or visit www.zippyfinancial.com.au
Louisa Sanghera - Director and Principal Award-Winning mortgage broker at Zippy Financial
Louisa created Zippy Financial after a 25-year career in banking, with the goal of using her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients grow their wealth through smart property financing. Whether you are looking to buy your first home, re-finance or build your property investment portfolio, Louisa and her team of experienced brokers can help guide you through the challenging maze of finding & securing exactly the right loan for you.
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