WHAT IS A "STRESS-TEST" RATE AND HOW DOES IT AFFECT YOUR BORROWING POWER?

So you’ve checked out how much you can borrow through the bank's online calculator and thought “that works!”, only to find when you go and apply for the loan it’s not as much as you thought it would be.?

There are a lot of variables when it comes to getting a mortgage.

Most people will kick start their journey online where the options can be overwhelming and it's hard to find where to start.? The most common place to see if you can even afford a mortgage is by using one of the hundreds of?online mortgage?calculators.??

Now, here's the thing with online mortgage?calculators - they just give you?a ballpark figure as they are only taking into account the most basic information and not really giving you what you need?- which is how much you can ACTUALLY borrow.?

One of the lesser known factors when applying for a mortgage is the "stress test" that a bank must apply to a loan.?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 (at some banks this can be up to 2.5% on top of the current floating rate).

This helps them to get an idea of what could happen in the future should the interest rate increase and to make sure you can still make the repayments.

If you can meet the serviceability at the stress-test rate, then broadly speaking you pass the test, and as long as the rest of your application stacks up the lending is approved.?

As interest rates rise, the stress test will also increase, so to maximise your chances of getting the home you really want, you need to get your expenditure in check. How much you spend has a direct impact on the amount you can borrow so by lowering your expenditure you will increase your chances of getting that loan approved.?

Here are a few tried and tested ways to get that spending in check!?

1. Make a list of non-essential expenses, the things you can live without for a while. By cutting back on eating out, coffee’s and Uber Eats you can free up a bunch of hard earned money which can make a huge difference to the amount you will be able to borrow!
2. Look for ways to reduce your essential or fixed expenses?like cutting back on subscription services (do you really need Netflix, SkyTV, Neon & Disney Plus all at once?) You could also consider switching to a cheaper energy, internet or phone provider. There are companies such as?FastConnect that do this for you and have the latest special offers from all providers at their fingertips! Too easy.
3. While you’re in savings mode?- why not get rid of that credit card that you’ve been holding on to for a rainy day? While it’s handy to have, a credit card limit actually goes against you when applying for a mortgage, even if you don't have a balance owing.?This is because lenders will usually factor in the assumption that your credit card limit is fully used when calculating your borrowing power. It's amazing how something so small can have such a big impact!

Remember, not all banks are created equal and they don't all have the same stress-test rate.

By using a trusted Mortgage Adviser you can get access to over 20?different lenders and be rest assured that you are getting the most out of your borrowing power.?

If you need a hand navigating the mortgage maze then touch base with us and we can help guide the way.

Rodney, Dallas & Nigel

?? 0800 1 AGILE

?? [email protected]?

??loanmarketagile.com