Navigating the mortgage maze
Taking a walk through the mortgage maze you’ll come across a few dead ends with twists and turns you can readily get lost in and guess what, it’s always changing. The Reserve Bank sets the rules and trading banks adhere to those rules each with their own criteria to meet. That’s where a good mortgage adviser can walk you through the process.
The first consideration is Loan to Value Ratio ( LVR ). This determines how much you can borrow against the value of the property expressed as a percentage ie: 80% LVR means 20% deposit etc.
So First Home Buyers ( FHB ) get a break and can have an LVR of 95% provided the loan is through a Kainga-Ora ( KO ) participating bank. Otherwise most banks will be at 90% LVR.
Then for your next owner occupied home, 80% LVR is the general rule however most banks will have an allowance for a percentage of their book to go to 90%, typically reserved for own bank customers so if you’re already with that bank you’ll get preference. Its restricted to a quota that no one’s ever really sure what it is, it’s a moving target so not always guaranteed, banks will move criteria when getting close to filling their quota.
Residential Investment Properties are at 70% for existing with new builds and construction loans at 90% and new build Residential Investment Loans ( RIL’s ) at 85%.
Fully serviced vacant land up to 10 ha is typically 80% with rural lifestyle up to 10ha 90% with commercial 65% and development and rural property typically 50% with strong rural cases up to 65%.
Debt to Income ( DTI ) ratios are there as a speed limit if the banks want to exercise them which factors total debt at 6 times gross annual income for owner occupied and 7 times gross annual income for investment property. This is typically usurped by UMI as follows.
Uncommitted Monthly Income ( UMI ) is net income after tax less household and fixed costs to show the amount available to spend on a mortgage which determines how much mortgage you can service with a small allowance for variations including interest rates.
Credit card limits whether used or not, can erode your borrowing power for example a $10k limit is factored as an expense at 3% or $300 mth which reduces your borrowing power by around $57,500 on a 30 year mortgage. Reducing unnecessary short term expenditure can significantly increase your borrowing power on a mortgage.
It’s the job of mortgage advisers to piece all the bits together to compare all the banks options and come up with a result.
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