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Why do we stress test your loan?

Oktay Sengoz

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26/10/2022

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1 min read

When applying for a home loan, the lender has a buffer they put in place to ensure you can still make repayments if the interest rates were to increase. This is called the benchmark rate, sometimes its 2.5% above the actual interest rate, sometimes it’s a set rate, no matter the product you choose.

Different lenders have different benchmark rates, which means different lenders will allow you to borrow more or less based on their benchmark rate. Obviously, the lower the benchmark rate, the more you can borrow and vice versa.

But it is also important for you to understand how an interest rate increase could impact your repayments and cashflow, especially if it’s your first time you are entering into a mortgage. Even though we can mitigate this risks with fixed rates etc, most people tend to stay on a variable rate.

Here is our process

We give you the current repayments and the proposed repayments if interest rates were to increase by 1%. It’s important to understand this from the onset, rather than being shocked with increased repayments when interest rates increase.

We then ask you to apply the repayments to your current budget and ask that you are fully comfortable with these repayments and have a buffer in your budget to absorb a potential interest rate increase.

We might even ask you to act like you have the loan for a few weeks while we are processing your loan. This allows you to try before you buy before committing to a 30-year loan.

Talk to us today to find out how much you can really borrow, rather than a bank telling you how much you can borrow.

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