Getting your mortgage application together can require quite a bit of financial scrutiny. In order to figure out your serviceability, your potential lender will look deeply into your finances.
It’s a no brainer to take your credit card debts into consideration when applying for a mortgage. But what many people do not realise is that high credit card limits will not bode well for a home loan application.
If you have a high credit limit, you also have a high debt risk in the eyes of your lender. As the logic goes, there is no stopping you from boosting your credit card limit the day after your loan is approved.
“We have to take account of 3% of the total credit card limit, regardless of what the applicant owes,” says Homeloans Ltd Business Development Manager Sally Carmichael.
“If they had a $10,000 limit but they only owe $1000, we still have to assess $300 a month and that comes directly out of their liability. It does make quite a difference.”
Even if you haven’t put a cent on your credit card for the past five years, a high credit limit will negatively affect your serviceability. The best thing you can do is lower your credit limit, or cancel that credit account entirely.
“You need to pay out your credit cards and avoid having any other debt,” says Carmichael. “You need to be able to use your full amount of income.”
For those that have to pay off their credit account before dreaming of cancelling their liability, it is imperative that you pay your debt on time, according to your minimum repayments.
To discuss how your credit card limits may affect your maximum borrowing capacity contact us on 07 3911 1190 or use our contact form.