Buffering and Lenders Ratios: An Overview

The mortgage application verification process lasts at least four weeks for several reasons. Lenders put an applicant’s finances through several stress tests. One of them is buffering. Buffering and lenders’ ratios work in tandem with each other.

The Australian Prudential Regulation Authority announced that it increased the buffering rate for lenders in October 2021.

Every lender qualifies an applicant for a set of loan terms including a business loan. Then they apply buffering. The buffering rate stood at 2.5% interest rate points.  As of October 2021, the rate stands at 3%. 

The lender places a hypothetical increase of interest rates on the applicant’s financial status. If interest rates increase by 3% interest rate points, can the applicant still afford the loan? When the applicant cannot afford such an increase, they still have options.  

Our loan specialists at Mortgage House have tools that allow them to find alternative funding options. For example, they can find a less expensive home. The applicant can also offer collateral toward the mortgage. Acquiring a guarantor helps the applicant’s borrowing capacity and power too. 

The good news is that several Australian government organisations want their citizens to become homeowners. Failing to qualify for one loan doesn’t mean it takes all options with it.

Mortgage House works with an array of clients in many financial situations.  

Buffering and Lenders Ratios Conclusion

Buffering and lenders’ ratios go hand in hand the same way that other ratios do during the mortgage application process. Mortgage House loan specialists can answer your questions. Contact our team today.

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