#AskABroker: How Can I Maximise My Borrowing Capacity After Constant Rate Rises?

Published by Otto Dargan on September 8, 2023

Hello! I’m Steven Chan, a mortgage broker at Home Loan Experts. If you’re concerned about how the recent interest rate hikes might affect your plans to get a home loan, you’re definitely not alone. I’ve helped many clients who were in the same boat.

The good news is that I’m here as your reliable guide. I’ve curated seven valuable tips that will equip you with the knowledge to increase your borrowing power today.

Let’s start with the first tip.

1. Manage Your Credit-Card Limits

If you have credit cards with high spending limits and are not using them, you should consider lowering those limits or closing the accounts. Banks look at your credit cards when they decide if they should lend you money or give you more credit. They don’t care only about how much you owe right now; they care about how much you could owe based on your credit limits. So, it’s smart to reduce or close unused credit cards so it doesn’t look like you plan to borrow a lot of money.

2. Clear Other Liabilities

If you have debts like student loans or ‘buy now, pay later’ facilities, try to pay them off. It’ll boost your ability to borrow more money in the future because lenders see you as less risky when you have fewer financial obligations.

3. Find Extra Income Sources

Consider exploring ways to boost your income. Bonuses, commissions, overtime, allowances, dividends, family support and tax-free income can augment your regular earnings to provide much-needed financial stability and flexibility. Not only do they help you save, pay off debts and handle unexpected expenses more comfortably, they can also play a pivotal role in increasing your borrowing capacity when applying for a home loan.

4. Embrace Principal And Interest (P and I) Repayments

Consider starting with the common principal-and-interest (P and I) repayment structure. It might help you borrow more money because the interest rates are usually a bit lower when you choose this option, and lenders usually calculate it based on a 30-year repayment plan. This can make it easier for you to qualify for a bigger loan. However, it’s essential to think about this decision in the bigger picture of your investment strategy. Some argue that picking a loan where you pay interest only initially can increase your borrowing capacity later because lenders sometimes consider it an existing debt.

5. Explore Non-Standard Lenders

Non-traditional lenders can broaden your borrowing options, as they tend to be more flexible regarding various income sources and existing debt obligations. However, exercise caution, as their loans often come with higher interest rates. Also remember that the interest rate is just one factor among many to consider when integrating a loan into your financial strategy. Your unique requirements and long-term financial objectives should guide your decision-making.

6. Ownership With A Partner

If you have a partner who’s earning income, it’s a good idea to consider including them in the loan process. This can greatly increase the amount you can borrow, since your combined income makes you a more attractive candidate to lenders.

7. Maintain A Frugal Lifestyle

Living within your means by cutting out unnecessary spending can definitely make you more eligible for a larger loan. When you show that you’re financially responsible and can manage your day-to-day expenses sensibly, it lowers your risk as a borrower and demonstrates to lenders that you’re well-prepared for responsible homeownership.

Increase Your Borrowing Capacity Today

We’re here to make it easy for you! At Home Loan Experts, we know cool tricks and solid strategies for how to maximise your borrowing capacity, and we are passionate about finding you the home of your dreams. You can also check how much you can borrow with our borrowing power calculator.

If you’re curious and want to know more, just give us a shout at 1300 889 743 or fill out our free online assessment form.