- May 23, 2019
- Posted by: Streamline Finance Services
- Category: Finance, Home Loans, Interest Rates, Lending
So to give you a bit of background about 2 years ago APRA who is a government regulator forced the banks and lenders to use a minimum rate for their servicing of 7%. This means that when we look at your capacity to borrow we will use a rate of 7-8.5% on any new borrowing or existing loans you have, even if the new loan or existing loan rate is much lower. For example we can get access to home loans rates as low as 3.48% but we would need to show to the bank you can make repayments on a rate of 7% or on a $500,000 mortgage you would need to show you can make repayments of $3,326 per month (7% ) but really your repayment would be $2,239 per month ( 3.48% )
I have run a few scenarios with lenders to see what sort of an impact the updated changes would make on someone’s ability to borrow and they are positive. Example: single and no children with a $5,000 credit card limit and an income of $85,000 could borrow an extra $60,000 under the new rules of a buffer of 2.5%. The proposed rule would mean clients need to show they can make repayments on a rate of 2.5% higher than they are offering you. So if the lender was offering you 3.48% you would need to show you can service your loan at a rate of 5.98% not 7-8.5% as it currently stands.
Now these changes are only a proposal and we will need to wait to see what the final outcomes are but the impact could be positive.
As always the examples don’t take into consideration your personal situation and we would need to assess and understand your personal circumstances to know the impact of these changes may be.
If you would like to know more please give us a call 0417 131 057 Shannon Gibbons Mortgage Broker