Debbie Shankar - 11 Jul, 2014

Tips to Improve Your Home Loan Serviceability

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Serviceability is vital to ensuring that you obtain finance when you’re wanting to buy a home or investment property. This is because serviceability defines if you’re able to meet your home loan payments or not.

A lender or bank typically uses your serviceability to determine how much you can borrow from them. The general rule of thumb is the less serviceable you are, the less you can borrow.

How is serviceability determined?

A lender will review your assets, income and overall financial situation and then compare this in relation to your debt, liabilities and living expenses. They will then calculate how much residual income you have and determine how much you can comfortably set aside for loan repayments. This then determines how you can financially service your loan.

How can I increase my serviceability?

Loan serviceability increases when you have less debt and more residual income. Therefore, by reducing the amount you spend and generating more earnings you’ll increase your serviceability.

Some of the most effective ways you can increase your serviceability are as follows:

1. Pay off debt – If you have outstanding debt, such as personal loans, store accounts and credit card debt, then start paying these off. Reducing your debt now will increase your residual income later down the track.

2. Reduce your credit card limit – Every $1,000 of available credit reduces your borrowing power by around $4,000. Therefore, by having a lower credit limit theoretically means you can borrow more. Plus, once you’ve secured your loan you can always increase your credit limits if you wish to.

3. Reduce your overheads – We all enjoy luxury, but is having the latest phone, car and furniture a must? Instead of rushing out and buying or leasing the latest goods, make do with what you have or even downgrade. You’ll save yourself a great deal of money and you’ll be able to borrow more.

4. Consolidate debt – If you have too many small loans and other payments to make, then consider rolling these into one loan and then work to pay this off.

Work to increase your serviceability before applying for a loan. This will give you a higher chance of securing the loan you want and it won’t affect your credit score.

Do you want to know how you can increase your serviceability? If so, then contact eChoice TODAY.

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