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How can you improve your borrowing power

1.      Cancelling unused credit cards: Even if you don’t use them, lenders will take credit cards into account when they calculate your borrowing power. Most lenders also assume that your credit cards will be fully drawn to their limit.Cancel any credit cards you don’t use or even consider reducing your credit card limit to improve your borrowing power.


2.      Getting a fixed interest rate: Lenders generally add at least 1.5% on top of standard variable interest rates when they assess your home loan. The buffer issued to mitigate potential rate hikes in the future and can greatly reduce your borrowing power. However, if you fix your interest rate for at least three years, the buffer isn’t added. This means you can borrow more.


3.      Having updated financial records: Updated financial records are extremely important especially if you’re self employed. Banks assess your borrowing power using your two most recent tax returns and account statements.Outdated records will not inspire confidence in the lender and can lead to your loan being declined.


4.      Renting out your property: You can rent out an existing property and use the rent income and negative gearing benefits to increase your borrowing power.


5.      Choosing the right home loan: Home loan features such as a line of credit can impact your borrowing power. Lenders use different assessment rates for different loan types so only go with the features you really need.


6.      Saving a large deposit: If you have a 20% deposit, you won’t need to pay Lenders Mortgage Insurance (LMI),which can amount up to several thousands of dollars. LMI is a one-off fee usually charged when borrowing more than 80% of the property value. A large deposit can go a long way to improve your borrowing power.


7.      Going with a lender that can accept your income: Different lenders treat casual, contract and full time employees differently. Overtime and bonus income are also assessed differently. By going with a lender that can accept your income completely, you can automatically increase your borrowing capacity.


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