Australia’s official interest rates have increased by 350 basis points since the RBA began its battle against inflation in May last year. With most lenders passing on the increases in full to their customers, this in turn has now more than doubled the average owner-occupier variable mortgage rates, from 2.90% in April 2022 to 6.40%, with possibly more hikes to come.

But it’s not just homeowners that are hit hard by interest rate hikes; buyers are too, with the cumulative impact of 10 consecutive rate hikes shaving tens of thousands of dollars off the average buyer’s budget. That’s because a typical buyer's borrowing capacity will drop by 5% every time the RBA increases the cash rate by 50 basis points.

Six ways to boost your borrowing power…

Fortunately, there are several factors beyond interest rates that can influence how much money you can borrow from a lender, such as your:

Income
Debts
Living expenses
Credit score
Deposit size

As a result, there are things you can do to boost your borrowing capacity, such as:

>Increase your income: A higher income means you’ll have more money to repay your loan.

>Cut back on unnecessary spending: Creating a budget and tracking your expenses can help you identify areas where you can reduce your spending, freeing up room in your budget.

>Reduce your credit card limits: Lenders consider the maximum amount you could borrow, not your actual debt, when they assess your ability to repay a loan.

>Pay off existing debts: Retiring debt can increase your borrowing capacity by reducing your debt-to-income ratio.

>Improve your credit score: Your credit score is a critical factor in your borrowing capacity as lenders use it to assess your creditworthiness and determine the interest rate on your loan.

>Increase your deposit size: A higher deposit means you're borrowing less, reducing the risk to the lender.

As lenders tend to assess borrowing capacity differently, it’s important to apply for finance with the most appropriate lender for your individual circumstances, which is where a skilled mortgage broker can greatly help. An experienced broker will not only reduce stress, and bring you closer to your objectives, but more often than not, they’ll also save you thousands of dollars in the process.

In our view a mortgage broker is a necessity, particularly in the current climate.

Westmount Financial is not a mortgage broker, nor do we have any financial interest in loan business, however, we are more than happy to introduce clients, family, and colleagues to energetic, professional mortgage brokers if/when required.

If its time for a reboot or second opinion feel free to reach-out.

Rick Maggi