Latest news with #homeLoan
News.com.au
a day ago
- Business
- News.com.au
Expenses that affect your borrowing power for a home loan
Want to know how much you can borrow? While income and deposit size are crucial factors in any home loan application, there are also a range of 'liabilities' that lenders take into account when assessing how much they will lend to you. COSTS THAT DRAIN YOUR BUCKET Mortgage broker and founder of Two Red Shoes Rebecca Jarrett-Dalton says it's helpful to think of it like 'a big bucket of money.' Not only do banks deduct tax as well as regular living expenses, generally using the HEM index, they also consider a whole range of other additional expenses, or liabilities, depending on your lifestyle and financial situation. These include credit card limits, any kind of repayment, including car loans and personal loans, HECS debts, private health and life insurance costs, private school fees, and in some cases, Strata fees. 'Whatever is left is broken down into a monthly figure,' she says. 'Everything that is not an average living expense has an impact.' And the impact can be quite substantial. 'Every $10,000 of credit card limit is about a $50,000 reduction in your borrowing capacity,' she says, explaining that any type of repayment could shrivel your borrowing power. 'If we think about every kind of repayment, a credit card they take 3.8 per cent, so $10,000 is $380.' 'Every $380 worth of repayments, whether they be loan repayments, whether they be HECS repayments, whatever they are, is a $50,000 additional reduction. 'So if you think of an average car loan sitting close to $1000, that's three times – that's $150,000.' Novated leases are even more costly, she says. 'The banks can't separate out what is the finance component and what are the general running costs so they have a huge impact on your borrowing capacity,' she says. 'Essentially in your average living expenses they take out an average running cost of the vehicle as well as it coming out in the actual repayment.' If Strata costs aren't included in the HEM index used by the bank, they are generally assessed using the $380 worth of repayments method, meaning 'if your Strata is $1000 a month it's about a $120,000-$130,000 reduction.' WAYS TO HELP YOUR APPLICATION You may not be able to compromise on costs like health insurance, Strata or private school fees, but you can improve your borrowing capacity by paying down existing debts. Canstar's data insights director Sally Tindall says reducing credit card limits also goes a long way since banks 'have to assume the worst – that you've maxed out your card' when they assess your expenses. 'Credit cards have the capacity to burn a giant hole in your maximum borrowing capacity, even if you don't owe a single cent on the card,' she says. Tindall says aiming for a lower rate can also help since lenders add a three per cent buffer during the assessment process. 'For example, someone applying for a mortgage, on the average wage as a single borrower on a rate of 5.50 per cent instead of 6 per cent, could see their maximum borrowing capacity rise by around $24,000,' she says. But she says it's important to leave some financial breathing room when taking on a mortgage. 'Just because your bank says it's OK to borrow up to a certain amount, this doesn't automatically mean you should,' she says. 'A home loan can be for up to 30 years – that's a long time to be saddled with debt that you have trouble managing day-to-day.' APPLICATION TIPS The best way to improve your borrowing capacity is to increase your income and pay down your debts – just remember that a mortgage is a big commitment and borrowing to your maximum limit is never recommended. Canstar's data insights director Sally Tindall shares some ways to strengthen your home loan application. 1. Increase your income – even a $5000 pay rise on the average wage could improve a single person's borrowing capacity by more than $30,000 2. Shop for a lower rate – a single person applying with an average wage on a rate of 5.50 per cent instead of 6 per cent could see their maximum borrowing capacity rise by about $24,000 3. Save more – a larger deposit could mean you'll need to borrow less and potentially avoid LMI 4. Cut up credit cards – cancel excess credit cards and reduce excessive limits remembering that a $10,000 limit will reduce your borrowing power by about $50,000
News.com.au
27-05-2025
- Business
- News.com.au
Burbank, YourLand offer nation's cheapest 3.49 per cent home loan rate in move governments called on to back
Australia's cheapest home loan rate is a wallet-saving 3.49 per cent that might be about to get even cheaper — but you'll only get it if you're helping fix the nation's housing crisis. Major building group Burbank and YourLand Developments are offering the tiny figure, which would save borrowers about $24,000 across its two-year time line on a $750,000 loan, to encourage people to build homes in select Victorian housing estates. But with the figure 2.68 percentage points below the nation's 6.17 per cent standard variable rate, it has already sparked calls for the government's to copy the idea as a way to stimulate lagging housing construction nationwide. Housing Industry Association stats released last week show just 180,000 new homes are expected to be built nationwide in Australia this year. The number if forecast to peak at almost 213,000 in 2028 — still short of the 240,000 figure set by the National Housing Accord as an annual target to stop home prices continuing to surge dramatically, and to help address the country's housing affordability crisis. With government incentives so far yielding limited results in enticing more Australian's to build a new home, largely due to heightened building and trades costs, some builders and developers are looking for innovations to encourage buyers themselves. The Burbank and YourLand Developments 3.49 per cent finance offer is only available to those who use Burbank's lending arm National Pacific Finance. But it has been years since such a figure was publicly available, with Reserve Bank statistics show the last time typical variable interest rates for housing were this low was June, 2022, when they were 3.5 per cent. While Burbank Homes operates in Victoria, Queensland, South Australia and New South Wales, currently the only eligible housing estates are in Melbourne. They include Society 1056 in Fraser Rise, Seventh Bend in Weir Views, both in the city's west, as well as Officer Fields and Officer Central in Officer to the south east. Burbank's sales and marketing general manager Anthony Garrubba said while it was looking unlikely building costs or land prices would fall any time soon, they believed it was possible to make building new homes more appealing by using a lower mortgage rate. 'The big problem isn't demand, it really feeds back to serviceability,' Mr Garrubba said. 'The intention here is getting people a chance at home ownership.' While not for everyone, there is a $750,000 loan cap on the offering, he said it was already leading to sales that would help get more homes built. 'This is the cheapest home loan rate in the country, and I can't see anyone beating that,' he said. 'But the nicest part of it, is that it works. We have had a customer take it up within the first nine days of it coming up.' Mr Garrubba added that the offer was also very much a variable rate, so if the Reserve Bank cut interest rates in the coming two years — the 3.49 per cent interest margin on loans issued under their program would also likely decrease. YourLand Development's head of sales Adam De Pasquale said after a number of challenging years for first-home buyers hoping to build a property, momentum was now changing. 'By partnering with Burbank to provide this industry-leading rate, we hope to give more Victorians the boost they need to make their dreams of building their first home a reality,' Mr De Pasquale said. Loan Market broker Jacob Decru said while honeymoon rates weren't unprecedented, using them to spark more housing construction around Australia was an idea government's should be now considering. 'I love this, as it's a good long-term thing for an entry-level buyer,' Mr Decru said. 'But this would get first-home buyers into the market, or anyone into the market — and they need more dwellings, so this might be an option instead of rebates. 'This is a really cool way of doing it. Dropping the rate to encourage building could actually be an important way they can look at as an initiative.' However, Mr Decru said those considering such an offer would be wise to ensure they could still afford to pay a higher rate, so they were prepared for the end of the 'honeymoon' offer in two years time when standard variable rates could be higher. Better yet, by paying extra to match up to the standard variable rate more widely available today, 6.17 per cent, the broker said buyers using the scheme would be able to get a significant jump start on their home loan that could put them ahead for years. Mr Garrubba said while the offer was only available in Victoria at present, they could also see the benefits of it being offered more broadly should government support the approach.
RNZ News
13-05-2025
- Business
- RNZ News
Do you really need a credit card history before applying for a home loan?
Credit card spending is unlikely to affect your home loan application, experts say. Photo: 123RF By Anna Chisholm, ABC Have you ever been told that you'll need good credit card history to successfully apply for a home loan? It's the kind of unsolicited advice that pops up at family lunches and catch-ups with friends. But, according to financial educator Natasha Janssens and independent mortgage broker Craig Morgan it is more complicated than that. Janssens is a former financial planner and mortgage broker who lives in Canberra on the land of the Ngunnnawal people. She says the idea that you need a credit card to secure a mortgage comes from the United States. "In Australia, we really don't need a credit card in order to get a home loan," she says. Morgan, who lives in regional New South Wales, on the land of the Birpai people, says it is "a bit of an urban myth" that you need a proven track record of borrowing and repaying via a credit card to be a successful home loan applicant. "If you've got a really good solid credit history it probably counts for you. It certainly doesn't count against you," he says. But he says: "Whether you have or haven't had a credit card in your history is still largely irrelevant". For other loan types, your credit history may be more of a factor, but when applying for a home loan, your employment status and spending patterns could have more sway. If you're planning to buy a home, Janssens says, "the first thing is to check whether or not you actually have a credit score". You may have one without knowing. You can check your credit score online for free by contacting an online credit score provider, she says. The MoneySmart website recommends avoiding any provider that has a charge or asks for payment details. "Typically, you agree to their privacy policy when you sign up. That lets them use your personal information for marketing. But you can opt out of this after you sign up," MoneySmart says. It also states that a copy of your credit report can be requested every three months for free and recommends getting a copy at least once a year. "(A credit report) includes things like your credit rating, the credit products you hold, and your repayment history." Morgan says credit reporting agencies are likely to have a report for you if "you've had some component of credit, that could be something as simple as a mobile phone". Morgan says having a "clean" credit history with a good saving record can mean more to lenders. In the absence of credit history, Janssens says, the lender (usually a bank) would assess someone's ability to repay a mortgage in other ways, such as a consistent savings, their rental history, and paying utility bills on time. She says lenders are looking for evidence of reliability and consistency, which goes to an applicant's character. If you don't have a credit score, Janssens recommends talking to a lender or mortgage broker directly before applying online. As you may get automatically declined online by some lenders. Morgan says credit cards are "always going to count against you" when it comes to your borrowing capacity. If you're preparing to buy a house and want to borrow as much as you can a mortgage broker would likely advise you to get rid of your credit cards anyway, he says. This is because lenders are required to assume any credit cards are "maxed out" and a lender has to consider the minimum monthly repayments required when calculating how much you will be able to pay back and how much you can borrow initially. Janssens says "reducing your borrowing capacity" is one of "a couple of downsides" that come with credit cards. Janssens suggests spending conservatively in the six months before applying for a mortgage. "We tend to spend more when we can afford to spend," she says, but "it's a good idea to practice spending assuming you have a mortgage." Also make all repayments on time, as lenders will "be on the lookout for things that might suggest that you could have difficulties repaying". This includes pay day loans, accounts with pay now buy later services, and gambling. Morgan says to expect lenders to go through your bank statements and credit card history (if you have any) and don't go on a spending spree in the months prior. Sometimes people who have been diligently saving "have that one last hurrah". "What we see is this really horrific spending history in the three months leading up to the loan application." It might not cost you the loan, but it's not putting yourself in the strongest position either, he says. This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances. - ABC
ABC News
13-05-2025
- Business
- ABC News
Do you really need a credit card history before applying for a home loan?
Have you ever been told that you'll need good credit card history to successfully apply for a home loan? It's the kind of unsolicited advice that pops up at family lunches and catch-ups with friends. But, according to financial educator Natasha Janssens and independent mortgage broker Craig Morgan it is more complicated than that. Ms Janssens is a former financial planner and mortgage broker who lives in Canberra on the land of the Ngunnnawal people. She says the idea that you need a credit card to secure a mortgage comes from the United States. "In Australia, we really don't need a credit card in order to get a home loan," she says. Mr Morgan, who lives in regional New South Wales, on the land of the Birpai people, says it is "a bit of an urban myth" that you need a proven track record of borrowing and repaying via a credit card to be a successful home loan applicant. "If you've got a really good solid credit history it probably counts for you, it certainly doesn't count against you," he says. But he says "whether you have or haven't had a credit card in your history is still largely irrelevant". For other loan types, your credit history may be more of a factor, but when applying for a home loan, your employment status and spending patterns could have more sway. If you're planning to buy a home, Ms Janssens says "the first thing is to check whether or not you actually have a credit score". You may have one without knowing. You can check your credit score online for free by contacting an online credit score provider, she says. The MoneySmart website recommends avoiding any provider that has a charge or asks for payment details. "Typically, you agree to their privacy policy when you sign up. That lets them use your personal information for marketing. But you can opt out of this after you sign up," MoneySmart says. It also states that a copy of your credit report can be requested every three months for free and recommends getting a copy at least once a year. "[A credit report] includes things like your credit rating, the credit products you hold, and your repayment history." Mr Morgan says credit reporting agencies are likely have a report for you if "you've had some component of credit, that could be something as simple as a mobile phone". Mr Morgan says having a "clean" credit history with a good saving record can mean more to lenders. In the absence of credit history, Ms Janssens says, the lender (usually a bank) would assess someone's ability to repay a mortgage in other ways, such as a consistent savings, their rental history, and paying utility bills on time. She says lenders are looking for evidence of reliability and consistency, which goes to an applicant's character. If you don't have a credit score, Ms Janssens recommends talking to a lender or mortgage broker directly before applying online. As you may get automatically declined online by some lenders. Mr Morgan says credit cards are "always going to count against you" when it comes to your borrowing capacity. If you're preparing to buy a house and want to borrow as much as you can a mortgage broker would likely advise you get rid of your credit cards anyway, he says. This is because lenders are required to assume any credit cards are "maxed out" and a lender has to consider the minimum monthly repayments required when calculating how much you will be able to pay back and how much you can borrow initially. Ms Janssens says "reducing your borrowing capacity" is one of "a couple of downsides" that come with credit cards. Ms Janssens suggests spending conservatively in the six months before applying for a mortgage. "We tend to spend more when we can afford to spend," she says, but "it's a good idea to practice spending assuming you have a mortgage." Also make all repayments on time, as lenders will "be on the lookout for things that might suggest that you could have difficulties repaying." This includes pay day loans, accounts with pay now buy later services, and gambling. Mr Morgan says to expect lenders to go through your bank statements and credit card history (if you have any) and don't go on a spending spree in the months prior. Sometimes people who have been diligently saving "have that one last hurrah". "What we see is this really horrific spending history in the three months leading up to the loan application." It might not cost you the loan, but it's not putting yourself in the strongest position either, he says. This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.
