DOING the mortgage dance with banks and other lenders has become more complex and confusing.
It wasn’t too long ago that all you had to do was clap your hands if you wanted to buy real estate, invest or refinance, and lenders would battle each other for your business.
Today many are demanding a mixture of the Macarena, Limbo, Hokey Pokey and Gangnam Style, with a couple of backflips for your finale, if you want to borrow money.
This month The Commonwealth Bank threw a bunch of marbles onto the dance floor when it banned all new investor refinancing, while NAB previously introduced restrictions on people living in specific postcodes.
Mortgage specialists say more tricky moves are likely as lenders try to avoid trouble with regulators. It’s their own version of the Chicken Dance, but it can easily get potential borrowers in a flap.
If you’re frustrated by their tougher stance, try to not take it too personally. Lenders operate with rigid rules in an effort to avoid bad debts. Some are protecting us from ourselves, others are protecting their own profits.
Most lenders will slug you with expensive lenders mortgage insurance if you borrow more than 80 per cent of a property’s value, but that insurance doesn’t help you if you default — it only helps pay back the loan to the lender. If you can’t pay, you’re on your own.
Lenders today are also more careful about measuring your ability to repay a mortgage, often adding about three percentage points to your current interest rate before approving a loan.
This means that while you may get a good deal at around 4 per cent for a mortgage, they will test your repayment ability as if the interest rate was 7 per cent — which is highly unlikely in the foreseeable future.
With stricter rules likely to continue, what can borrowers do? Here are a few dance moves that might help.
1 RUNNING MAN
Slip on those ‘90s giant shoes and run to the next potential lender, and the next one. Just because CBA has gone anti-investor, it doesn’t mean every bank has. Although before doing that you might need to consider getting some help from an independent mortgage broker like us. We know all the tricks, and cost you nothing — the lender pays us, not you. And we can avoid this running from bank to bank which would destroy your credit score.
You don’t have to wiggle your butt in anyone’s face, but always try to show off your good side. Make sure your debts are well under control, build a good deposit or equity in existing assets, and trim back credit card borrowing limits if you don’t need them. A stable job is important, or at least tax returns or BAS statements showing solid income.
3 HARLEM SHUFFLE
There’s no law that says all your borrowings must be with one bank, so feel free to shuffle it up. Many mortgage and investment specialists recommend borrowers use a few different lenders to help lower their risk. And if a lender knows they don’t have all of your business, they may be more willing to offer you a better deal. We can show you how best to structure a sfae & sound portfolio
4 SAFETY DANCE
If you try everything and still have no luck, perhaps it’s time to take a look at yourself. Are you being too optimistic or too risky? Staying safe, and taking some time to improve your financial situation may help. In the short term, it could be an idea to simply stop (Hammer time) and plan your next moves… or meet for a strategy seesion with us, your mortgage broker.
Remember that lending rules and trends change regularly, just like dance crazes. We can help you navigate the lending maze right now and into the future.