Want to increase your borrowing power by $160,000?
Differences in how lenders stress test mortgage lending can have a measurable impact on how much you can borrow. This is where a mortgage broker can help.
20 April 2018
Many borrowers don’t realise that lenders calculate your ability to repay a loan based on a rate of interest that is higher than the actual rate on offer. This is designed to protect you in the event interest rates go up in the future.
In finance circles this is called a ‘stress test’ and each lender does its stress testing differently. Consequently, there are big variations in how much both bank and non-bank lenders are willing to lend Kiwi home buyers.
How big is the difference?
Each lender has a different policy, so they stress test anywhere from 7.0% right up to 8.5%. Lenders tend to align stress test rates with movements in the official cash rate though they may make adjustments outside of OCR movements as they have in recent years.
To demonstrate how this affects borrowing power, we took an average couple and calculated what each lender on the Mike Pero mortgage panel would lend them. On average we found a staggering difference of $160,000:
Buyers outside of the main city centres are just as affected. While the numbers presented may relate more to a major metro city like Auckland, your borrowing with each lender will also vary significantly for a lower priced property similar to those in regional New Zealand.
So, what are your options?
While every lender is different, mortgage brokers know the market well and can help customers optimise their borrowing based on their financial situation. In a competitive property market, an extra $160,000 can make a big difference, so contact your nearest Mike Pero adviser today.
About our couple:
• Clean credit history
• Combined income of $130,000 p.a.
• Savings of $100,000
• Ongoing monthly expenses of $2,000