So the bank has just told you that you can borrow $1,000,000 and you don’t know whether you’re excited or scared. Excited, because you can borrow the money. Scared because you’re worried how you will pay back $1,000,000.

The process of buying a home is daunting in its self, that’s a short-term experience. You’ve purchased your home and now have a 30 year loan which needs to paid off, but now you’re struggling to come up with the money for your repayments. Don’t let this be you.

Banks have recently changed their process when assessing whether you can borrow money. Previously the bank would assess your income, take away any existing loan payments and use a percentage of your remaining income to see if you can afford the loan.

The bank now assesses your loan application very differently. They still assess your income and take away any existing loan repayments you may have, but now also request you to itemise your living expenses. What this means is that the bank is now taking into consideration your spending habits. This is important because even though you may earn $300,000 per year, you may spend the same amount on holidays, eating out, expensive hobbies etc, so if you spend all that you earn, how would pay your loan?

Given that the banks over recent times have made it very easy for us to pay for everything with your card and are pushing for a cashless society, they already have a good idea about your living expenses or spending habits. Things like PayPass, PayId, Apple Pay and Google Pay are only going to get better and more available and soon the banks will know which restaurant we visit, how often, how much we spend there and what food we like or which fashion labels we like and how much we spend on clothes, or if we like online shopping.

As mentioned in previous blogs, we have always been assessing customers borrowing capacity based on their actual expenses, but we also take things further. We ask clients to make the proposed monthly repayments into a savings account before the loan has been approved.

This does three things.

1. The clients see whether they can actually service the loan before the loan has been approved.
2. The clients get used to making repayments on their proposed loans before they are legally required to do so and they get themselves into a habit.
3. The clients save a minimum of 2-3 months of monthly repayments, which gets put into an offset account as a back up.
4. We might even explore the possibility of taking advantage of government tax incentives that can save them thousands.

We do things a little different and ensure that the whole process is enjoyable for our customers, so it’s important to us to ensure customers will also be comfortable making repayments after the loan settles even if interest rates where to increase. Buying a home or an investment property is one of the biggest purchases in your life, why not make it enjoyable.

A penny saved is a penny earned. Benjamin Franklin

Thank you for reading