Lenders Assessment

How lenders workout whether you can afford a loan

Different lenders use different formulas to work out how much you can borrow.

Being able to secure your ideal loan amount can seem like a battle of balances. Once you’ve worked your budget and finances through a spreadsheet, there’s still the one issue left to deal with: assessment rates. This is also known as an ‘interest rate buffer’.

Getting in while the going’s good and securing your loan while interest rates are low doesn’t change the fact that lenders are compelled to ensure that you will be able to make repayments if interest rates fluctuate.

Matching the features of a loan to your financial position is important, and often requires a third-party expert to help guide you through.

It is important is that people consider the ramifications of exposing themselves to debt. When assessing costs, it is better to be conservative with the numbers being used.

Assessment rates add a margin to the variable or fixed interest rate of the loan. The assessment rate provides added protection that a borrower will be able to repay their loan when interest rates rise, because they are sure to rise and fall throughout the life of a loan.

APRA is clamping down on lenders exposing people to too much debt and not preparing them for interest rates as well as they could have.

The assessment rate can be anything from 1.5-2% above the variable rate, depending on the lender, and many are currently using rates of approximately 7.5% to 8%. Mortgage assessment rates and methodology vary from lender to lender, which is why different lenders may offer people in the same financial situation different loan amounts.

In some cases, the difference in loan amounts offered by different lenders can go into tens of thousands of dollars.

Give us a call on 1300 252 088 to find out more.