#4 Commitment Issues

Commitment Issues

Today, you’ll learn the “Commitment Issues” strategy.

This works wonders and improves the income side of your mortgage application (serviceability).

That can increase the chance that your mortgage gets approved.

Let’s break it down …

Why your mortgage application got declined.

When banks assess your mortgage application, they check all your existing debts. This includes credit cards, mortgages, car loans and everything else.

They’ll also look at scenarios like:

• What happens if interest rates increase? or
• What if you max out your credit card?

They do this to figure out the minimum repayments you'd need to make under some test conditions.

That’s so they know you have enough money to pay all your debts, even if some things change.

This has some drawbacks.

Sometimes, the bank thinks you're spending lots of money … even though you're not. Especially if you’ve got things like unused credit cards.

So the bank says no.

That’s where the Commitment Issues strategy comes in.

How to get the bank to say ‘yes’.

If the bank says no, you can restructure your debts. This can make your repayments go down (at least, in the bank's eyes).

The aim is to decrease the minimum repayments required in the worst-case scenario.

Here’s how it works:

1. You look at which debts you can restructure. Things like mortgages, unused credit cards and personal loans.

2. Then you do things like –
- Increasing the number of years you pay the mortgage off over.
- Cancelling your credit cards.
- Increasing your mortgage (low-interest debt) to pay off personal loans (high-interest debt).

This should improve the income side of your mortgage application.

Of course, if you extend your mortgage term and pay it off over more years … you’ll pay more interest.

That’s why I recommend combining this strategy with the Mortgage Buster strategy.

That way, you can have more spare cash in the bank's eyes … and not pay way more in interest.

This can be a bit hard to get your head around. So let's see how the Commitment Issues strategy worked for 2 Kiwi investors.

"We can borrow an extra $85,000!"

Meet Laura and Zach, a young couple starting their property investment journey.

They wanted to buy their first rental property and had their eye on a new build in Hamilton.

But, they had “commitment issues”.

They had a $10,000 car loan. This was on a 13% interest rate.

They'd maxed out a $3,000 credit card (19.95% interest rate).

And they had a GEM visa card with $5,000 owing (27.99% interest rate).

These made it harder to get approved for a mortgage. The three debts had high repayments in the bank's eyes.

So the bank said "no". They wouldn't lend Laura and Zach the money.

Feeling discouraged … they used a mortgage adviser and the Commitment Issues strategy.

First, they borrowed an extra $18,000 against their own home (6.5% interest).

They then used this to pay off the car loan and two credit cards.

Not only does this mean paying a lower interest rate, but they've also got longer to pay off these debts. That means lower repayments when the bank runs its tests.

This simple step meant Laura and Zach could borrow an extra $85,000 for their investment property.

When the bank re-ran the numbers, it now looked like they could afford their debts. So the bank approved their mortgage.

Even if you have debts, you can (sometimes) restructure them. This will give your mortgage a better shot at getting approved.

Want to know how you can use this strategy? Get in contact today.