A bank or other lender will lend to a borrower based on the lower of the Loan to Value Ratio (LVR) and the Debt Serviceability Ratio (DSR) applying to the borrower’s application.
A bank or other lender will not lend if the amount to be lent is a greater percentage of the value of the security property available than that bank or other lender is comfortable lending. For example, if a lender is comfortable lending, say, 90% of the value of an owner occupied home (as determined by a sworn valuation), the maximum amount it will lend is 90% (LVR=90%). Another lender may only feel comfortable lending, say, 80% on such security. Part of the skill, knowledge and experience of a qualified mortgage broker is knowing which lenders will lend what proportion of the value of each type of security being offered, and the exact terms and conditions that the lender will place on such a loan. In this way, a broker can be critical to their client in the overall level of borrowing they can arrange for them (and therefore the overall size of the property portfolio they can amass).
Similarly, a bank or other lender will not lend beyond what they assess to be the borrower’s capacity to meet the repayments on the amount being borrowed (the DSR that the bank applies). While a mortgage broker cannot increase the income of a client from all sources, he/she is often able to select a lender who is willing to recognize a particular type of income for serviceability purposes (e.g. different types of social security payments) or willing to accept a greater proportion of different types of income (e.g. rental income from investment properties) which an alternative lender will not recognize.
Obviously, if the client simply goes direct to their own bank, they may (inadvertently)
For more information on what you should consider before borrowing money please visit www.financeuncut.com.
