When they assess your home loan application...

[Fuzzywuzzy]

OR do you apply for a home loan and it is assessed at the rate that you'll be paying?

The formal approval is based on the interest rate that is on your contract documents. I have seen some bankers and mortgage brokers do some dodgy things to get loans approved even seen people sacked for it

[Indadhanu]

Ok so (sorry, financial things don't make a lot of sense in my head!) ... we got pre-approval for one amount based on their higher rate. The serviceability. It isn't a lot, the loan repayments actually come out at less than we have paid per week in rent for the last two + years, so I'm just trying to work out if that'll increase at all or if that is FIXED. Maximum they'll approve ever.

I understand that if/when we get approved for the loan it'll be for the rate on the product, whatever the product is that we choose, not on the higher 'serviceability' rate they calculated our pre-approval on. With the pre-approval they didn't ask what product we'd go for, they just used their higher rate.

So when we go for the loan, if we are pre-approved for one amount, we cannot get any more than what they assess is our serviceability? Even if the contracted interest rate is lower and assessing at the rate increases our serviceability? That's how the mortgage broker made it out to be - we'd get more money going for a different product, because they assess it at a lower rate than they assess serviceability.

This is so confusing. I think he was a total douche

[anney]

When we used a mortgage broker, he went through all the paperwork, plugged in the figures to his software and that came out with the 6 or whatever products that we qualified for and he went through the conditions/interest rates etc. on each one with us so we could make the choice. All in the initial consultation. Not sure if they all work like that.
As FW says, some of them do some dodgy things so beware!

[Fuzzywuzzy]

So when we go for the loan, if we are pre-approved for one amount, we cannot get any more than what they assess is our serviceability? Even if the contracted interest rate is lower and assessing at the rate increases our serviceability? That's how the mortgage broker made it out to be - we'd get more money going for a different product, because they assess it at a lower rate than they assess serviceability.

This is so confusing. I think he was a total douche

He is speaking the truth It is possible to borrow a higher amount if you take out a loan on a lower interest rate than your borrowing capacity was based on. If you are concerned about it, get the bank or broker to run your serviceability again based on the lower interest rate of the loan product you think you'd apply for so you have an exact figure. Generally we like to be on the safe side (ie. borrowing a little bit less than your maximum borrowing capacity) to ensure that the loan goes through no problems.

Gee, I hope that makes sense, let me know if you want me to explain it more

[RhiChiChi]

He is speaking the truth It is possible to borrow a higher amount if you take out a loan on a lower interest rate than your borrowing capacity was based on. If you are concerned about it, get the bank or broker to run your serviceability again based on the lower interest rate of the loan product you think you'd apply for so you have an exact figure. Generally we like to be on the safe side (ie. borrowing a little bit less than your maximum borrowing capacity) to ensure that the loan goes through no problems.

Gee, I hope that makes sense, let me know if you want me to explain it more

Exactly!

The thing is, if they assessed your affordability on todays interest rates and their calculation showed you could afford it, what happens if the interest rates go up tomorrow? That is why they base it on a higher rate than the current interest rates. Hope this makes sense

[Indadhanu]

We have been working it all out if the interest rates rise quite high, we aren't after much more though, only an extra $10,000-$15,000. Would mean the difference between a 2br unit and a 3br house!