How Lenders Work Out Whether You Can Afford A Loan

iStock_000009239289Medium-563x375Different lenders use different formulas to work out how much you can borrow, but the biggest loan isn’t always the best idea.

If you would like to discuss, you can call Elkins Finance on 1300 355 467 or use the contact us form to request we contact you.

Being able to secure your ideal loan amount can seem like a battle of balances. Once you’ve worked your budget and finances through a spreadsheet, there’s still the one issue left to deal with: assessment rates. This is also known as an ‘interest rate buffer’.

Getting in while the going’s good and securing your loan while interest rates are low doesn’t change the fact that lenders are compelled to ensure that you will be able to make repayments if interest rates fluctuate.

Matching the features of a loan to your financial position is important, and often requires a third-party expert to help guide you through.

“What is very important is that people understand the ramifications of exposing themselves to debt,”

“When modelling costs, an adviser would be wise to be very conservative in the figures they are using.”

Assessment rates add a margin to the variable or fixed interest rate of your loan. The assessment rate provides added protection that you will be able to repay your loan when interest rates rise, because they are sure to rise and fall throughout the life of your loan.

The assessment rate can be anything from 1.5-2% above the variable rate, depending on the lender, and many are currently using rates of approximately 7-8%. Mortgage assessment rates vary from lender to lender, which is why different lenders may offer people in the same financial situation different loan amounts.

In some cases, the difference in loan amounts offered by different lenders can go into tens of thousands of dollars. Ensuring that you can pay your loan, whether rates stay low or rise, requires a bit of know-how. Speak to Elkins Finance on 1300 355 467 or use the contact us form to request we contact you.