am i likely to meet the servicing requirements for a loan were thinking of getting?

I meet the requirements on the quick borrowing power calculators the banks have on their websites, but i failed the more detailed macquarie bank servicabilty test, which i downloaded as a spreadsheet. Im suprised to have failed but i may have input the information incorrectly.

Just bought a house outright for $1.05m
Currently Living in a unit worth $1.2m, with $200k owning.

We are wanting to move into the house and rent out the unit, expecting $750 p.w.
Im wanting to borrow an additional $200k to work on the house.
Income is 88k p.a from my job and im expecting 39k for propsed rental income.
According to my math the rental income alone is more than enough to completely cover that loan.
I should add, have 2 kids under 5 at the moment, wife not working.

Im interested to see the thoughts here as i would have thought this is a pretty unremarkable loan given the current climate. Planning to speak to a broker this week and would like to have my ducks in a row.

Thanks kindly

 

Why didn't you talk to a broker before buying the house?
Would probably have made more sense to get some level of mortgage on the house and keep the extra cash in an offset, which can be used for the renos.

This is one of those own goals where concerns about debt messes with your long term goals.

 

Our original plan was to sell this unit as we thought we were not going to be in a position to be able to keep it. Had a few things change in recent weeks and we have decided we would like to try and keep it

 

so your loan would be $400k with income of $88k plus the rent.
It should be enough, probably, from a serviceability point of view

 

yes, thats correct.
alternatively i would have to take out a LOC against the new ppor to have access to the funds we would like for the renovation work? is that correct?
Or is the best way to approach this refinancing and increasing the mortgage?

Do you the banks want to know exactly how money is being spent when you "top up" a mortgage like im suggesting?

 

You are borrowing money so all the normal requirements apply including the cash out restrictions. You could borrow against the first or the second property, it doesn't really matter too much, but might be better to borrow against the first one which is already mortgaged.

 

How you assess your cashflow based on current repayments/rates , living expenses etc is completely different to how it's being assessed via the banks.

You need someone to do the calculations on the actual calculators that banks use to do a proper assessment, not the online ones.

Different banks has different assessment rates and would all come back with different borrowing capacity.

 

Why a LOC? Most aren't true LOC's anymore and can have higher interest rate vs a new separate loan split with offset, which may be a better structure for you.

Some do, some don't
Strongly suggest using a broker for this deal, you may end up worse off going direct.

P.s. those online borrowing calculators aren't accurate and are often misleading, they're basically marketing tool/to generate leads.

 

Couple of things banks will do different to the online calculators and that may be applicable to your case:
- Buffer all liabilities, new and existing
- Set living expenses at minimum of HEM or your actual expenses
- Buffer rental income at 70% - 80% usually

If you're looking at maximizing your borrowing power each lender will calculate this differently depending on how they treat the above points. Some lenders have a lower servicing rate floor, all have a different HEM depending on family size and structure, and some have higher rental income. All these things, and more, will affect your servicing so I strongly suggest seeing a broker who can get the most out of your current capacity.