"The bank won’t lend the amount im after as I have hit a serviceability wall, how can I maintain or increase my serviceability so that i can buy the property i want?" common question we get asked by investors and first home buyers alike.
If you speak to your everyday broker or banker their answer might be - Increase your income/pay and reduce your debt. It’s true but easy said than done!
The Shape Home loans answer would be; it comes down to how we structure the loan and the lender we use, and using the right lender and loan structure at the right time;
- There are over 30 different ways we can structure the same loan and each structure will produce a different result and is suited to different needs, short/long term goals and scenarios
- Each lender have a different formula and credit policy to calculate your maximum borrowing capacity; Shape Home loans has access to over 35 lenders.
With access to over 35 lenders and knowledge to over 30 different ways to personalized and structure your loan, this gives us the uncanny advantage of maximizing your serviceability
based on your situation.
End of the day, you as a borrower also needs to make sure you don't over commit yourself especially in this current low interest rate market; always
1. Have financial buffers in place
2. Consider a range of insurance such as income , mortgage and life insurance to protect your biggest asset- you and your family.
3. Consider your financial and mental capacity
4. Plan for an increase in interest rate- what goes up must come down and vice versa
5. Access your situation on a regular basis, as situations does change
6. Plan ahead and be smart about your commitments and goals
A Shape Home loans advisor can assist with commitment, insurance and future planning as well.
1. Cancel or reduce unnecessary credit cards limits
2. Cancel or reduce unnecessary Store cards limits
3. Pay out non- tax deductible debt first such as Personal loans, credit card and car loans
4. Review your Investment properties weekly rent
5. Consider a PAYG variation on your Tax return (for some property investors)
6. Make sure your tax returns are up to date (We may need to rely on other form of income such as Shares. stock, dividends, trust distribution and bonds etc..)
7. Review your current home loan interest rate on your loan compared to the market, if it’s 0.30% higher for a comparable and similar product than give Shape Home loans a buzz
Current standard Variable interest rates for a full featured loan with a 100% offset account
$100,000 - $249,000 loan – 4.95%
$250,000 - $499,000 loan – 4.90%
$500,000 - $750,000 loan – 4.79%
>$750,000 in loans – Under 4.75%
For basic home loan with no features, rates are roughly 0.03% lower.
Rate current as of 1st Mary 2014 @ 80% LVR ie 20% deposit or equity, subject to lenders acceptance.
Example of the common 8 Loan structures and lender's choice that can make a difference in the serviceability;
1. Interest only set up- Setting up your current loans as interest only will reduce your monthly liability and allows you to direct funds to non- tax deductible first; this is only usefully with some lenders only. Some lenders have the reserve thinking and will increasing borrowing for Principle and interest set up- speak to your broker first.
2. Using fixed interest rate at the right time- Using a fix rate for the right type of loan and property at the right time is criteria in increasing your serviceability; some banks will atomically increase your serviceability if you fix your loan for 3 to 5 years depending on the bank and proper type. Fixing the loan to early in your investing cycle or for the wrong property type is a common mistake some investors make.
3. Choosing the lender based on their income policy – Each lender has a different policy on how much and the type of income they would accept for example for rental income most lenders will only take in 80% of your rental income into calculation ( 20% for market movements and vacancy) – However there are lenders that will consider 100% of the rent
4. Lenders accepting Bonus and allowance- Banks can be very traditional in their dealing and thinking and as a result some banks will only accept base wages and may not consider bonus/commission or allowance as an income; especially if you have less than 2 years proof or history- This is not always the case for the “new age” thinking lenders of 2014.
5. Different “servicing rate or assessment rate” formula- You might be able to afford a $400,000 loan today based on today’s low 4.90% interest rate; however when the banks calculates the repayments and affordability they will need to include a buffer into the increase rate and this will range from 5.50% - 9.25% depending on the banks.
4. Refinancing – This in some instances will reset the 25/30 years loan counter which will also reduce your liability ( but not always the case depending on the lender) , however careful consideration and planning needs to be taken
5. Choosing the right loan product– Some home loan packages with a good rate may come with some terms and conditions that may limit your borrowing capacity based on the banks calculation. Ie Some packages comes with a compulsory credit card
6. Annual fee and bank fees- Reduce your fees where possible
7. Understanding add backs (especially for self employed) – This is more common among self employed who’s taxable income on their tax turn might be a lot lower than their real income and this is probably due to the credit of a good accountant who within their rights have claims some non cash lost deduction, in this case we can get the bak to add these bank into the income calculations-also known as add backs.
Common add backs are; Depreciations, Once off expense, directors salary or dividends, Interest expenses.
8. How the file is presented- Sounds simple, but sometimes it comes down to how the file is presented and how the “mitigates” are presented.
Contact our office today on 1300 74 5626 Or info@Shapehomeloans.com.au