No two mortgages are ever identical, underscoring the importance of comparing different home loan options. Each mortgage offer comes with its unique set of fees, interest rates, features, and more. Furthermore, not all brokers assess borrowing power and risk in the same manner, resulting in varying amounts of money that can be borrowed.
But how do you effectively compare your borrowing power across different mortgage brokers? Could one broker potentially offer you a higher borrowing capacity? Let us delve into the details and find out.
Understanding Home Loan Borrowing Power
Home loan borrowing power refers to the maximum amount of money a lender is willing to provide you with for purchasing a property. To assess your borrowing power, the lender evaluates various factors related to your financial situation, aiming to ensure that you can comfortably manage the loan.
Lenders may vary in their methods of estimating your borrowing capacity, but the key elements they take into account include:
- Income
- Debts
- Spending habits
- Regular expenses
- Savings
- Share portfolio
- Family situation
- Credit history
- Deposit size
Your profile as a borrower hinges on each of these factors. If you find yourself expending excessive amounts of money or grappling with multiple competing debts, you adopt a riskier position. The higher likelihood of facing challenges with mortgage repayments accompanies such circumstances.
However, should you possess substantial savings, maintain an untarnished credit history, and demonstrate a reliable income, you present yourself as a more secure prospect to potential lenders. As a result, they grant you access to larger borrowing opportunities, as the financial risk of them not recouping their investment diminishes.
Understanding The Mechanics Of Home Loan Borrowing Power
The first step in calculating borrowing power involves assessing your income and expenses. Lenders want to ensure that you can comfortably manage your mortgage repayments without stretching your budget too thin. They aim to avoid situations where borrowers end up spending more than 30% of their monthly take-home pay on mortgage repayments, which could lead to financial stress.
Next, lenders estimate the size of your mortgage repayments and compare them to the money left over after deducting your expenses from your income. They also consider the loan term to determine if you can make repayments consistently over an extended period, often 20 years or more.
Different home loan lenders have varying comfort levels when it comes to risk exposure. Some may only lend to borrowers who can provide at least an 80% Loan-to-Value Ratio (LVR), meaning you must have a deposit of at least 20%. However, some lenders may be more lenient and allow borrowers with a smaller deposit to take out a loan.
Additionally, some lenders may impose caps on the total sum they lend to customers, which is influenced by their available funding. This means that even if you meet all the necessary criteria, there might be a limit on the amount you can borrow from a specific lender.
How to find out your borrowing power with different lenders
The majority of home loan mortgage brokers have a borrowing power calculator accessible through their online platform. This ingenious tool allows you to estimate the extent of your potential borrowing without the necessity of an initial application. In doing so, the mortgage broker will offer expert counsel, giving valuable insights into the most favourable lenders for your mortgage requirements.
Alternatively, you can engage in a conversation with one of our specialists to ascertain the scope of your borrowing power and to discern the distinctive offerings from diverse lenders, all tailored to your unique circumstances and needs.