How your spending habits affect your borrowing ability

Figuring out how much you can borrow for a home loan isn't just you telling the bank you can afford the repayments. It's a detailed process where every aspect of your financial life can be scrutinised. They'll want to know all the standard stuff about you like your household income, and other income such as rental or investment. But there's more to the equation than just the basics.

Your existing debts play a crucial role. Car loans, buy-now-pay-later, HECS, credit cards… these will all chip away at your maximum borrowing power. Credit cards in particular can bring your maximum down. Lenders will look at the card limits – not the balance – when assessing your borrowing power.

If you have non-mortgage debt and are thinking about a home loan you can consider paying down your debts and reducing credit card limits or closing credit cards. Speak to us first – if you’re using your saved deposit to close other credit you want to make sure you don’t leave yourself short.

What about my Uber Eats addiction?

Yes, banks care about how you spend. Particularly if you have a smaller deposit, the lender will want to see your spending habits to make sure you aren’t putting half your pay on race 4 at Flemington every Saturday. If you’re an Uber Eats fan and have excessive transactions on your statement this could hint to the lender that you aren’t super responsible with your spending. It’s beneficial to your bank statement regularly to see where your money is going. Uber Eats, Afterpay, Streaming Services, and eating out can quietly accumulate over time. Even if you aren’t applying for a loan, reviewing your spending is a good financial habit to be in.

In the end, getting a mortgage isn't just about numbers on a page. Part of it is proving to the bank that you're financially responsible and ready to take on the challenge. So, get wise, tighten your budget, and talk to us for advice on how to get into your home sooner.

Home loans for older borrowers

There is no such thing as “too old” to get a home loan, however older borrowers should know that they may be subject to more scrutiny and other restrictions.

If you’re in your 50s or thereabouts and thinking about taking out a mortgage you may have some questions.  A typical mortgage is 30 years, and unless you plan on work beyond 80 you will need a plan! Below are some things to take into account if you are an older borrower considering a loan.

1. The easiest approach, if you can afford it, is to shorten the loan term.  For instance, if you are 55 years old and planning on retiring at 70, taking out a 15 year loan term rather than a 30 year loan term will be seen favourably by most lenders. Having a shorter loan term will mean higher repayments, so you will need to show that you can manage higher repayments. 

2. If you have a strong asset position including superannuation this can help show the lender that you can manage the loan at retirement. If there are assets that can be sold at retirement to clear the loan, or income generating assets that can help you manage repayments post-retirement this will all be considered.

3. You might consider buying with a family member.  Dual occupancy homes are increasingly popular for this type of scenario, particularly where older borrowers live in the same property as their adult children. With combined incomes it can be easier to show the lender your ability to repay.

4. Ensure you have clearly thought through how you intend on manage exiting the loan at retirement, if your planned retirement age is prior to the loan term. If you can demonstrate a clear plan to the lender it will give them comfort that they won’t be left exposed as you approach your retirement age.

Remember also, the bigger the deposit the lower the risk from the lender point of view.

A good mortgage broker like Blackwattle Finance will help you to understand what is achievable, which lenders are best suited to your needs, and how to show the lender how you will manage retirement. Get in touch with us to learn more.

How to pay off your home loan faster

Paying off your mortgage early is the dream of everyone with a home loan.  Paying off early will saving you money, and the removal of one of the largest financial burdens we face will bring great relief to you and your family.  Here are some ways to get rid of your mortgage sooner.

1. Switching to fortnightly payments of half your monthly repayment will mean you make an extra repayment each year (as each year as 26 fortnights).

2. Linking an offset account can have a massive impact. An offset with a healthy balance can save thousands in interest which reduces the time to pay off.

3. Cutting back on expenses (if you can!) means you can direct more money to the mortgage.

4. Make extra payments. Tax returns, bonuses, flogging your unwanted garden tools on Marketplace... it all adds up.

5. Making higher repayments than the minimum repayment will all add up over time.

6. Switch to a loan with a lower interest rate, but keep your repayments at the higher amount.

If you would like to know more about how to optimise your finances to pay off your mortgage sooner please get in touch!

Living expenses

When a lender is determining how much they are willing to loan you on a home loan they will look at a number of factors. This short article covers off how your living expenses factor in to your borrowing power.

As part of the broader picture of your overall credit worthiness, the lender will want to verify your living expenses and will take your living expenses into account. Your living expenses, along with other factors including your overall income and types of income, will determine how much the lender is willing to lend you.  Under the NCCP responsible lending guidelines, a lender must satisfy themselves that you will be able to pay off the loan without falling into financial difficulty.

What are living expenses

Living expenses are what you spend in a typical week, month, or year in order to maintain a reasonable lifestyle.  They are usually categorised something like this:

• Groceries

• Utilities, rates, strata

• Entertainment

• Transport

• Health

• Insurances

• Personal care

• Clothing

A common misconception is that if you have some large but non-recurring expenses (such as an overseas holiday or purchasing a new bike) that they will be included in your living expenses and will impact your application.  This is not the case, and as part of your application we will explain any unusual or one-off expenses.

A lender will usually assess your living expenses using a self-assessment and declaration by you, or a review of your bank statements, or a combination of the two.  If your expenses are on the lower side, the lender may rely on the Household Expenditure Measure (HEM) which is a measurement tool used to estimate the average spending for households and is based on the income and location of a household.  

If you’re thinking of applying for a loan but are unsure about how your living expenses might impact your application, please get in touch with us and we will be happy to answer any questions you have.

Refinance case study: one conversation could save you $141,759

You might be surprised at the potential savings from refinancing your home loan. Emily and Jack bought their first home in Rozelle six years ago and had not reviewed their home loan since then. However, with recent changes to the market, they were now ready to discuss refinancing.

We looked at their financial position and discussed their goals. They were looking for a lower interest rate, better online services, to pay down their loan sooner and consolidate debts. Comparing over 30 lenders we were able to select a loan tailored to their needs and objectives.

We selected a loan with a lower interest rate, minimal fees, an offset account and redraw facility.  The offset account works for Emily and Jack as they both earn an annual bonus, and putting the bonus income in the offset will allow them to pay off their loan sooner by reducing the interest payable.

When we refinanced the mortgage, Emily and Jack also took the opportunity to consolidate their debts. By borrowing an additional $25,000 they were able to clear and close their credit card and car loan. This had the benefit of reducing their overall monthly loan repayments, and an additional benefit of streamlining their finances as they only had to manage the one monthly repayment. The lender we selected has an excellent online banking portal - something that was very important to Emily and Jack.

We selected a low interest rate with a $4,000 cash back incentive to maximise savings. With their $1,200,000 mortgage this refinance will save them an incredible $8,725.36 in the first 12 months, and a total savings of $144,759,000 over the life of the 30 year loan*. This savings, achieved purely by refinancing, allows Jack and Emily to pay off their mortgage sooner, a primary financial objective when we first spoke.

We are up to date with the latest market information and are committed to finding you the best possible rate. If you want to chat about the refinance options available to you, contact Garreth today on 0414 444 683.

*Interest rates are not fixed and will vary in accordance with the market.

Expert advice from a broker committed to finding the best solutions for your needs