Amongst all the questions I’ve been asked about the banking royal commission, one gets asked by far the most.
“I have heard that as a result of the royal commission it will be harder to get a home loan. Is that true?”
Well, the answer is yes. But don’t panic. The reality is that it has been getting harder and harder to get a home loan over the last couple of years, so it’s really nothing new!
Here are four things that you need to know about the mortgage process.
1. Banks “stress test” your repayment capability
Whether you get a loan or not is not just based on current interest rates. Banks will calculate whether they think you can afford the mortgage today, when the rates go up a little bit and when the rates go up a lot. So even if you can afford the repayments today, you may not get easy approval on a loan.
Paying off your mortgage ahead of time can be done. This couple did it in four years. Post continues.
2. Living expenses count
Where the banks once made (rather generous) assumptions on how little you might spend on expenses in order to afford your mortgage (think living at the poverty line), there is now a growing trend towards requiring clients to submit a detailed budget – and if the bank believes the figures you provide are too low they will use their own figures.
While overall this is a good thing as people can’t take out loans that they can’t afford, it does mean that as a result, many people are unable to refinance as their living expenses are deemed to be too high.
In the coming years, it is expected that rather than asking you to declare your living expenses, banks will simply take advantage of their data feeds to automatically pre-populate that info from your bank accounts. Technology, right?! So it is important to start getting your spending under control today. Not to mention that this will help you to cope when interest rates inevitably go up!