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How to Increase Your Borrowing Capacity Despite the Interest Rate Rise

by Mish Daniel | Free Information

Thinking of investing in the current commercial property market? With the ever-increasing interest rates, we won’t blame you for assuming that it’s not a great time to invest. But with the right advice and a savvy approach you may be surprised at the opportunities available to you to increase your borrowing capacity and secure your next deal. Matt Punter from TSC Mortgage Brokers, a growing residential and commercial finance business that specialises in securing the best finance for investments, new home purchases, refinance and construction, joined us to shed some light on how you can boost your investment capacity despite the current financial landscape. The good news is Matt’s seeing signs that the interest rate rises are slowing down, and there are many silver linings despite the dark cloud of increases! Listen to the full conversation below, or keep reading. 💡

What is driving the interest rate rise at the moment?

Investor confidence has been shaken as a result of a lot of things unravelling in the world. Various international, economic and political factors have been major drivers for the increase in inflation. It’s a very delicate balancing act for the Reserve Bank of Australia who’s been increasing interest rates as a way to tame inflation.

How is the current interest rate environment affecting consumer borrowing options?

With letters landing on your doorstep announcing significant increases in various payments, it’s not surprising that most of us are considering other options. Ironically there are more options and remarkable innovations available to potential investors now, than ever before. The increased competition in the market makes it an excellent time for exploring other lenders! There are various new lenders and digital options that can help you achieve the best result. Innovation in banking is enabling other lenders to assess commercial proposals with more confidence. The faster approval rate of these new lenders is a breath of fresh air! As long as they have a reasonable security position they’ll approve loans while the bigger banks are lagging. The difference between major and non-bank lenders is that banks are big and slower with lots of responsibilities. And don’t assume that just because you have been with a bigger bank for many years that they will easily give you a loan. Banks often say no, or make you an offer that is too good to be true.  Bank Loyalty Tax (BLT) is when a bank increases its rates unexpectedly. They’ll lure you in with cheap rates, but then a few months later suddenly increase them. If nothing else, competition from your current lender keeps them on their toes, which makes it a great time for you to shop around. The key is to find an expert you’re comfortable with and that you trust. With their expertise and knowledge, they can shop around on your behalf, and find good deals. In addition to helping you increase your borrowing capacity or decrease your rates, they often track down amazing cash back deals for you.

Key criteria when applying for a loan

When applying for a loan, there are various key criteria you must meet in order to be approved. Such as: Credit score: Your credit score on your credit report shows how much money you owe and if you have been paying your bills on time. Lenders use it to decide if they will give you a loan. You can get a free credit report at Equifax, the main platform lenders use. Check it carefully and if you find any mistakes or loan amounts that should not be on the report, get them removed. Equity: You can calculate how much money you can borrow for a home by looking at how much the bank is willing to lend you. Typically lenders will let you loan 75% to a maximum of 80% based on the property valuation. Borrowing capacity: When you apply for a loan, you don’t want to make too many applications, because this can lower your credit score. It’s important to do your research and pick one lender, making sure that you are reasonably certain that it will be approved.

Financing Mistakes to Avoid

Loyalty to existing provider

Misplaced loyalty can lead to Bank Loyalty Tax (BLT) which will end up costing you more and prevent you from maximising your borrowing capacity.

Chasing the best rate

When you are looking for a loan, while it is important to get the best interest rate, you also need to think about what is best for you. Sometimes, the lowest interest rate may not always be the best choice. Lenders might put stricter terms on the loan, like requiring you to pay it back in 15 years instead of 13 years. Or put an amortisation clause in for 5 years interest only but then principle and interest thereafter. It’s important to understand the loan policies and weigh up if the lower rate is the best choice long term. 

Not thinking ahead of the current transaction

When you don’t think ahead of the current transaction it’s tempting to cross-collateralise security properties. Meaning you take out more than one loan against a single property or multiple properties. It may seem like an effective way to maximise your borrowing capacity at the time but putting all your eggs in one basket may lead to other problems down the line.

Leaving employment too soon

Your borrowing capacity can be reduced if you leave your job before you’re supposed to. This is because you’ll stop making money, and the bank will think you won’t be able to pay back what you owe. It may be a good idea to stay in your job longer to increase your borrowing capacity.

How to Increase your Borrowing Capacity

As interest rates go up, it becomes more important to have good borrowing capacity. That means you can get the best rates from lenders and not be taken advantage of. There are a few things you can do to improve your borrowing capacity.

Spread your lending

Spread your lending across several lenders to maximise the use of more liberal (non-bank) lenders that don’t have tight servicing parameters. So that no one lender has too much control over what you can do inside your own portfolio.

Rate reductions

Even though interest rates are going up, you can still ask your lender to lower the interest rate on your current loan. If they don’t lower it enough, you can refinance your loan at a new lender with a lower interest rate.

Minimise/refinance consumer debt

Some things that can help you borrow more money are paying off your credit cards and consolidating your debts. If you have a lot of debts from different places, consolidating them into one loan can help increase borrowing capacity.

Reduce Monthly Living Expenses

If you can reduce your monthly expenses, you’ll have more money to put towards your debts and increase your borrowing capacity. A budget is a great way to review monthly spending because you may not realise how much you’re spending on things like going out to eat or buying new clothes.

Joint ventures

A joint venture can be a good way to start investing in commercial property, especially if you do not have equity or want to spread the investment risk. Commercial property is an excellent investment. An expert can help you to fast-track your path to cash flow on autopilot.

FREE – Borrowing Capacity Discovery Session

Are you worried about how rising interest rates will affect your borrowing capacity?  Matt and his team at – TSC Mortgage Brokers, have generously offered to give you a free consultation just mention ‘Revolve Commercial’ when you contact them. With years of experience in the industry, they know how to reduce interest rates and improve terms. Contact Matt and his team today to start making the most of your money. 

Get a free Wealth Growth Plan – tailored to your unique needs!

Click here to answer a few quick questions, then book a no obligation 15-minute chat with one of our expert Agents at Revolve Commercial.  In this call, we will focus on you and see if you qualify for commercial lending. We’ll also introduce you to our joint venture program – which could give you the extra boost you need to reach your financial goals.  📞Don’t wait – book your free call today.