While the latest data shows signs that the rental market may be showing signs of easing off, property sale prices continued to climb in May, prompting home buyers to seek alternative solutions while they wait to find their next opportunity. Here we go through 5 ways to improve your borrowing capacity and improve your chances of having your next home loan application and offer approved.
The median house price in Perth is now $650,000 – up 3.2% from last month, and a whopping 17.1% from May 2023.
Demand for established housing remains strong, fuelled by ongoing population growth, contraints in the building industry and a challenging rental market.
With this demand for established homes looking unlikely to fizzle out anytime soon, our clients are turning to us to arrange solid pre-approvals, and biding their time in other ways to make sure they are in a strong position when the time comes to make their move.
Here are some of the ways that home buyers with an existing mortgage, can reduce debt, increase their borrowing capacity and get ready to make the next purchase, whether that is an investment property, or another home.
Make Extra Repayments Towards Your Home Loan
Making extra repayments on your home loan, even if they are small, can all help towards reducing the life of your loan and the total interest you pay. If you receive any additional funds that are surplus to requirements for your general expenses, like your tax refund, a gift, inheritance or a bonus, consider putting it straight into your home loan. The ability to make extra repayments on your loan will depend on your specific package, so check with your broker if this is something you would like to do. The less money you own on your existing loan, the better your borrowing capacity will be overall.
Refinance to a Lower Rate
With interest rates constantly fluctuating, it’s wise to look for better deals. Refinancing your home loan to a lower interest rate can reduce your monthly repayments and save you thousands over the life of the loan.
Use an Offset Account
Similar to making extra repayments, using an offset account for any additional savings you may have can reduce the interest you pay on your home loan but also allows you to access the money if you need to. Offset accounts work by subtracting the total in your offset account from your principal every month before calculating your interest payment. This is a widely used way that people save money on their home loan and pay it down faster.
Consolidate Debts
Look at ways that you can reduce your overall debt, especially high-interest debts like credit cards, personal loans and car loans. It may be possible for you to increase your mortgage (where you are likely to be paying a much lower interest rate) in order to pay out these other expensive debts and save money .
Review Your Budget
Scrutinise your budget every month or so to see if there are any areas that you could be saving money which you can then contribute to your home loan. There is often likely to be discretionary spending that could be cut across your monthly budget once all your essential expenses are covered. Simple things that might not seem like much but certainly add up when they go unchecked over time. Check your online subscriptions and paid apps on your phone for example, that are directly debiting from your account and consider if you could delete them and save the money instead.
Consider a Fixed-Rate Loan
If you’re currently on a variable rate and worried about rate increases, switching to a fixed-rate loan might be an option that suits your situation.
Working with a mortgage broker can help you explore all available options and find the best strategy tailored to your financial situation. If you’re looking for an opportunity to upgrade your home or buy an investment property but finding it tough in the current market, these are some of the ways that you can continue moving forward and making progress with your finance, while you are waiting to find your next property.
A mortgage broker can help to guide you to make the best decision on what to do and how you can bide your time, save money and make a strategy for how best to increase your borrowing capacity.
If you have any questions or need personalised advice, we’d be delighted to help. Get in touch today or book an appointment for an initial chat at a time that suits you.
All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.
