Opportunities currently abound in the property market and you don’t want to be restricted on your borrowing capacity especially this time. However, many investors face this hurdle because of the stricter policies around loans and refinancing. Chan & Naylor Accountants Perth gives tips on how to improve your borrowing power.
While real estate remains the most stable form of security for lenders, APRA still led a more conservative and responsible lending that’s focused on serviceability. The banks are legally obliged to ensure borrowers can meet their repayment responsibilities but they have different benchmarks in determining a person’s ability to repay his or her loan.
You can maximise your borrowing power first by doing your homework. Many investors can be lax when it comes to tax returns and keeping financial records updated but good record keeping can prove that you can repay your debt. Paperwork will allow you to prove your combined income and make the banks feel more confident that you can repay your commitments.
Another way to make the banks lend you more money is by putting smaller debts under a single loan. This may streamline your payments and improve your budget. If you refinance at a better rate, you can save plenty of money over the life of the loan. Remember that when a lender performs servicing calculations, your debts may limit the amount of funds you can use to pay your mortgage. However, you may combine your mortgage and unsecured debt so it won’t reflect as a financial commitment. The mortgage may be higher but your application will reflect less unsecured debts and raise less flags in terms of the credit amount you can service.
You can also get rid of your credit cards if you don’t need them. Having only one credit card will make you attractive to banks. The more credit cards, the lower your borrowing capacity will be. Keep your credit to a minimum and always repay on time. It is said that for every $1,000 limit you have on a credit card, you lose around $4,000 worth of borrowing capacity. It is also important to maintain a clean credit history.
You should calculate your living expenses before filing a loan application as well because this will determine the amount the banks will lend to you. School fees, repayments and even club memberships will be considered to determine your borrowing and repayment capacity.
Don’t forget to shop around to find the type of loan that’s right for you. While lenders often calculate the repayment capacity at a rate about 1.5% higher than the offered rate, fixed rate loans are calculated with no buffer. Those who apply for a loan jointly with a partner may be able to borrow more than what they would get as a sole applicant. Check the products’ features including line of credit or interest only repayments and get a good interest rate deal.
Remember that your rental income or salary may increase your borrowing power so if in doubt, talk to your accountant or financial broker. You may also consider refinancing if your loans do not benefit your investment portfolio. Change your loan structure or extract more equity to reduce your interest rate.
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Whether you are a beginner, seasoned investor or business owner, our property and business tax accountants can give you guidance to maximise the financial areas of your life. We can also give you an integrated and tailored solution for your superannuation, taxation, property investment, asset protection, estate planning and more.
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