After over a decade of cutting the cash rate, the Reserve Bank of Australia (RBA) has been increasing rates almost every month since April 2022. Homeowners and would-be borrowers may be nervously wondering how high their home loan rates will go.
The Reserve Bank’s continuing push with interest rate hikes has brought into focus the dilemma that borrowers now face in choosing their home loans.
With consistent interest rate rises over the past 12 months. It’s a good time to think about how much your financial situation and money choices provide you with security and freedom of choice. It’s a good time to consider your financial wellbeing.
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From first home buyers to families looking to upgrade their home, or buying an investment property, a pre-approval is an important step in planning for your purchase.
The importance of a pre-approved home loan
A pre-approval is a confirmation from a lender, that they have agreed in principle to lend up to a specified amount of money towards your purchase.
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When applying for a home loan, part of the assessment process includes what is generally called a “serviceability assessment”. In other words, it’s a way of testing how much you can afford based on your income and minus expenses.
Part of the expense category will include debts (also known as liabilities). Not all debts are equal and when it comes to buying a house, some debts can be helpful and some not so much!
Most lender serviceability assessments require a positive net income position (also known as surplus income) and many lenders also have DTI (debt to income) benchmarks which need to be met.
Below is a summary of some common types of debt you will need to declare to your Mortgage Broker and how they might affect your home loan borrowing capacity.
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Whether you are a first home buyer, looking to refinance your existing loan, looking to purchase an investment property or wanting to invest in commercial property, (unless you’re in an incredibly fortunate position) you’re going to need finance to help you achieve your goal. You could go directly to a bank to help you or you could use a mortgage broker.
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