To increase your chances of mortgage approvals with an Australia lender, the home buyer should know that credit card limit and spend are scrutinised closely.
What is the deal with credit cards?
Australia banks are looking at how you as a potential home loan borrower use the credit cards. Interest-free instalment payment plans are common in Singapore. The plans make sense to a shopper, instead of making a lump sum payment. However, the spend creates questions such as is this borrower living beyond their means.
High credit card limits are often seen as a symbol of success since it is linked to your income. You may not use up the limits but the fact the limit is granted, it means you certainly can use it to the last dollar. Balance transfer is commonly used in Singapore due to its low fees and zero interest. We know some banks are offering a 1-time fee of 1.38% pa only if you perform a balance transfer for 6 months.
How does credit card limit impact mortgage application?
Australia lenders are wary of these, especially they seemed not comfortable with the high limits granted in overseas countries such as Singapore and Malaysia. A rule of thumb within a foreigner mortgage application assessment is assuming 3% of the credit card limit will be used. That’s $900 on one $30,000 limit. Multiple by 4 cards, the assumption becomes the borrower will utilise $3,600 every month and may not pay it in full on time. This amount will form part of your monthly repayment commitments and it can be significant to impact your overall borrowing ability for a mortgage.
What should you do?
If you need to spend, we may advise our non-resident mortgage applicants to do it after the mortgage. Alternatively, reducing the credit card limit will go a long way in obtaining mortgage approval. If you are in the hunt for a mortgage, check out the latest Australia mortgage rates.