One of the questions we get asked often is “How can I borrow more money from the bank?” Whether our clients are looking to purchase their owner-occupied home or to invest in their first (or next!) investment property, most people often hit a roadblock when it comes to borrowing money from the bank.
"Serviceability" is your borrowing power i.e., the amount banks are willing to lend you to purchase a property. Serviceability defines whether you can afford to buy your first or next property while at the same time it may limit your ability to achieve your financial goals. It can restrict many variables in your decision making: such as the type, number, size and location of the property you can buy.
Furthermore, there are also a number of factors that are taken as an input into the calculation of your ‘serviceability’. This may include your income, expenses, current loan structures, type of loan, rental income and savings, among others.
Each lender has their own set of guidelines, and hence the amount you can borrow will generally differ with each lender.
If strategically planned, you can leverage to borrow more and expand your property portfolio to grow your wealth over time.
Let's look at 7 ways you can boost your borrowing power!
1. Know Your Credit Score
Your credit score plays an important role in how lenders will see your application. A credit score is one indication of risk. The higher the score, the stronger your application.
Your credit score is calculated based on your personal and financial information which forms part of your credit report. Your credit report includes information such as:
Debt and its providers details and repayment history,
Loans and loan enquiries,
Details such as your credit limits and defaults (if any),
Bankruptcies, debt arrangements and personal insolvencies.
Some simple ways to improve your credit score:
Pay all your bills and loan repayments on time.
Avoid applying for too many loans within a short span of time.
Make payment arrangements with your lender if you are unable to make repayments on time.
Get your credit report at least once a year to keep a check on your score and watch out for any fraudulent activity that may have occurred.
You can get your Credit Report for free at Equifax, Experian and Illion.
2. Understand Debt – The Good & The Bad.
Debt – for most people is a very frightening word and is often seen as a foe. Debt can be good or bad. One of the key fundamentals of wealth creation is to understand the difference.
Bad Debt
Debt can be viewed as bad if it is taken out for lifestyle expenses that are non-income producing and are not tax-deductible. Debts incurred with credit cards, personal loans, car loans etc. can have an adverse effect on your borrowing power.
Good Debt
Debt is considered good if it helps you to build wealth, generate an income and is potentially tax-deductible. Debts such as investment property loan, equity borrowed to invest in shares etc. are considered as good debts and have the potential to improve your borrowing power.
Own Home
Most people think their own home is an asset since it can grow in value over time, which is true. Contrary to popular belief, it is neither an income producing asset nor does it have any associated tax deductions. Hence if you have borrowed a huge amount to purchase your own home, it can have a significant impact on your borrowing power and can restrict you from borrowing further to invest.
3. Consolidate & Eliminate
Life can be unpredictable. Unforeseen circumstances may lead one into financial distress, and unwanted debt can start mounting up quicker.
Many people struggle to manage their money well due to high lifestyle expenses and expensive taste usually funded by credit cards, personal loans and car loans.
Most of these credits and loans often come with higher interest rate and can have higher repayments.
It can have serious implications on the money you can borrow from the bank to get ahead financially.
Some potential ways to deal with it include:
Consolidating more than one debt into a new loan with manageable repayment and loan terms.
Moving to interest-only repayment on home or investment loans for a time being to increase cash flow in order to pay off high interest loans.
Top up or refinance existing home loan and access the equity to pay off multiple debts.
0% balance transfers options are also available.
The goal here is to clear other debts (especially the ones at higher interest rates) as much as possible prior to applying for a new mortgage, as it can significantly boost your borrowing power.
Before making any decision on debt consolidating, it is important to understand all the terms and conditions. It is best to seek professional help to ensure that you are making the right decision.
A financial counsellor can be reached at National Debt Helpline
4. Reduce Spending & Available Credit
Often there are leakages in our day-to-day spending. The best way to inspect is to look into your last three months’ bank and credit card statements and see where unnecessary spending is.
Below are some quick tips:
Stop digital subscriptions like Spotify, Netflix etc. that you may no longer use.
Look for better deals on your phone plan and broadband.
Review and see if you can get cost-effective options for your utilities suppliers, insurances etc.
Reduce spending on simple things can save you hundreds of dollars each month, and it can not only increase your capability to service the loan but also boost your savings.
If you have unused credit cards, it is important to close them. Furthermore, if you have high credit card limits, you can consider lowering them as it will help increase your borrowing power.
For example, $10,000 credit card limit can reduce your borrowing power approximately by $50,000.
5. Opt For Longer Loan Terms
It is common for people to take a 25-year loan term to save more money on interest and pay off the home loan faster. On the other side, longer-term loans mean lower monthly repayments, which can be beneficial to boost your serviceability. However, it also means that the interest you pay throughout your loan can be higher.
For example, repayment on a $500,000 home loan with 3% mortgage interest rate over 30 years Principal & Interest repayment can be as below:
For 25 years loan term: $2,372 monthly
For 30 years loan term: $2,109 monthly
Remember, there are other ways to pay off your home loan faster apart from having a shorter loan term. Find out more in our blog 5 WAYS TO PAY OFF YOUR HOME LOAN FASTER
6. Don’t Max Out
When it comes to buying your own home, there are plenty of emotions involved, but you should always keep in mind the logical side of it. It is far too common to fall in love with properties that are over your budget or to spend too much on upgrades — you may eventually end up spending all your savings and maxing out on your borrowing capacity.
It is extremely important to strategize your purchase, be it your own home or investment property, keeping in mind that you will need to leave room to add the next property into your portfolio over the coming years.
7. Get Professional Advice
Talking to professionals well before applying for a loan increases your chances of being able to finance a property with much ease. It allows you to make a plan and execute it well.
A Finance or Mortgage broker is a professional with in-depth knowledge of various banks and their lending policies. Each lender has different guidelines, regulations and assessment requirements. After looking at your overall situation, your broker will know which lender can be best suitable for your circumstances.
With professional help, you have a much better chance of attaining your goals faster.
TEAM SONI CAN HELP
If you want to find out which strategy is right for you or need help to get your current loans reviewed, we can help you. In our extended partner network, we have several mortgage brokers and home lending managers whom we can work with and find the best solution for your situation.
At SONI, we help you lay the solid foundation for your finances by implementing tailor-made strategies that can not only help you pay off your home a lot earlier but also help you build a multi-million-dollar portfolio of investment properties.
We simplify Property Investment with our Experience, Knowledge and Passion.
To learn how you can make your money work for you and build wealth, book your 60-minute no-obligation and FREE Wealth Consultation NOW via this link https://lnkd.in/ezYrnFi