How do banks calculate debt servicing?

[muppet]

Hi Guys

I am requesting information regarding the banks calculations for servicing a debt/loan/mortgage and any other information that is based around manually calculating any other relevant figures.

Regards

[kieran]

Hi Muppet,

There are different calculations used depending on your circumstances (ie salaried, self employed or professional property investor).

The lenders tend to use slight variations but basically:

1) If Salaried they will let you commit up to 35% to all FIXED commitments (ie loan repayts , etc)
2) If Salaried and earning Rents they will let you also commit up to 75% of rental income.
3) If Self Employed they usually want 2 yrs financial trading history and then will generally treat your income as they would in 1) and 2) above.
4) If a 'professional property investor' then they scrap 1) and 2) above and generally like you just to have adequate surplus cashflow to live on after all fixed commitments (ie $30,000 to $50,000 at least)

There are also many variables to account for like the fact that they will assess your credit cards as a fixed commitment (5% of your limits) even if you owe nothing on them.

Of course there are all sorts of 'no-financials' loans available now and basically if you have enough Equity you can always borrow money... (sometimes it's expensive though you need to weigh that up against the opportunity cost)

Check out the FREE to use on-line calculators that I have created for the very purpose of roughly calculating your borrowing ability on the new Hybrid website due to go live next month!

[artemis]

Another variable seems to be who you are dealing with. I've purchased 2 properties this year. The first was a cheapie and I dealt with the normal lending staff at HSBC bank, where I have been an exemplary and not inconsiderable customer for some time. They would not give me the full amount, presumably by applying the income rules (no problem with LVR).

A couple of months later, I wanted to borrow another sum, twice as big with no real change in financial circs, and worked with a mortgage manager. No problem at all and it was so quick and easy I was stunned.

Guess who I'll be talking to next time!