When it comes to home loans, not all banks view and assess an application in the same way. They all have varying policies and
criteria. Things like self-employed income, overseas income, variable (bonus, commission etc.) income, or rental income and multi
ownership structures may be treated differently, directly affecting the amount you can borrow.
Additionally, banks have tools to gauge the suitability of an applicant such as stress test rates and UMI (uncommitted monthly income) calculations which all differ across the lenders. For example, let's take the stress test. A stress-test is when a bank assesses whether you can afford to continue to make mortgage payments at a higher interest rate than the one you're expecting. Currently at the time of writing the stress test rates can vary across the lenders, anywhere from 7% to 7.5%.
So if one bank has a stress test rate of 7% and another has a stress test rate of 7.5% then you may have a better chance of getting your lending requirements satisfied at the bank with the lower stress test rate. But how do you know which bank has the lower test rate? This is where working closely with a mortgage adviser is really going to play in your favour.
The UMI is a calculation that the bank does to assess how much uncommitted income you will have left over at the end of the month - another way to see if you are able to afford the new home loan you are seeking. Some banks will have a very strict UMI number that they adhere to, while others may be more forgiving.
With all the different methods each bank uses to calculate your maximum borrowing power, you can see from the table below just how much stress test rates and lending criteria can make an impact when it comes to your maximum borrowing capacity. If you are dealing with Lender G as opposed to Lender A, then you may be cutting yourself short by nearly $145,000. This could be the difference between you securing the property you want or not.
So how do you know if you are getting the most out of your borrowing power?
It can be quite tricky trying to navigate the options as there are so many available, so it’s our job to make sure that we find every dollar possible for our clients in this ever changing market. You really need to be casting the net far & wide and looking at what every bank has to offer, so having a Mortgage Adviser in your corner can really count. From navigating the lending landscape, to getting your mortgage application in order, we are here to support you at every step of the way.
If you would like some advice around your particular situation then please don't hesitate to get in touch with us.
