Borrowers should be mindful of their Household Monthly Expenses (HMEs). Th HME is heavily scrutinised by the lenders and living expenses must be realistic and fall within the HME’s parameters.
A Recent Case Study
A young couple in their 20’s sought to apply for a home loan. When they were reviewing their transactions, they noticed that their expenses with their current bank were categorised into; Food, Entertainment, Transport, Insurances, Communications, Health etc.
It was also noted that one of the applicants always utilises their ‘tap and go’ card.
When they completed their living expenses for the finance application, their bank probed their expenses and discovered that they did not match exactly with their bank statements. After discussions with their Bank Home Loan Manager, they decided to withdraw their application with that bank. It became obvious that they needed some experience to guide them through the process so that they dot the i’s and cross the t’s. They decided to talk to Paul, and are now successful clients of Flakus and Associates. Depend on Paul to help put your best financial foot forward when you’re thinking about entering the property market.
Borrowing Power
With APRA’s continuing 3% buffer for lenders assessment and benchmark and HMEs being adjusted accordingly, we have seen borrowing capacity reduced dramatically from April 2022. Further borrowing capacity is expected to reduce as interest rates continue to rise. Another measurement ‘tool’ that lenders are now using is the ‘Debt To Income ratio’ (DTI). This is the ratio of what you wish to borrow versus your annual salary. Potential borrowers will do well to plan ahead and take into considerations all the changes in the marketplace to ensure they end up with a package that suits them.
Fixed Rates versus Variable Rates
With many borrowers soon to have their Low Fixed Rate home loans expiring in the coming 12-18 months, borrowers will be facing an increase of between 3% to 4% from their fixed rate for their repayments. If that is you, it may be worthwhile now to reconsider your finances, especially your personal expenditure, and be prepared to explore the options available. The earlier you plan, the better prepared you will be to face any challenges in the marketplace in the near future.
Recently, banks have also been discreetly increasing their Fixed Rates without all the media hype. From our perspective, lenders will always review their fixed rates just before the next RBA meeting so borrowers will need to think ahead and prepare for all eventualities. With the situation now is so much flux, it pays to be prudent and pro-active.
Contact Paul today to discuss your current home or personal financial position and any future changes to your situation that may impact your financial well-being and peace of mind.