How to maximise borrowing capacity with interest rates on the rise

As we move through a period of increasing interest rates you are going to see your borrowing capacity get squeezed. While we don’t typically recommend borrowing to your maximum, here are a few tips that can help you improve your situation if you do:

  • Credit cards and Buy Now Pay Later terms can be killers. Banks only care about access to funds, so high limit credit cards that are under utilised should be reduced or closed.
  • Pay down debts. We often see clients holding savings in low interest saving accounts but are paying higher interest rates for loans and credit cards which they could pay off. This includes HECS debts and Novated Leases which are often forgotten.  
  • Consolidate your debts. Aggregating your debts into one single repayment can improve your capacity. However, be aware that by doing this, it may reduce your current repayment amount and improve cashflow but result in paying more interest over time.
  • Choose a bank that is appropriate. Each bank views capacity differently. While one will be conservative on capacity another may be more liberal. This also goes for the way they assess your income and debts.
  • Minimise living expenses and implement budgets. The amount you spend on living expense week to week can influence your ability to borrow.
  • Consider a longer loan term. While the industry norm for a new home loan is 30 years, some lenders will allow lending over 35 years. Don’t forget that by increasing the term of the loan you are increasing the amount of interest you will pay over the life of the loan.
  • Look for a lower interest rate. Bank loan assessments typically adds 3% to the rate you are paying when assessing capacity. In this case a lower rate will mean higher borrowing capacity.

While it is good to get an idea of how you can implement changes financially to increase your borrowing capacity, we recommend speaking to a broker to find the right solution and loan for your individual needs. They can be the filter between you and the bank and help set you on a pathway to achieve your home buying goals.


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