ANZ will decrease its interest rate floor for home loan serviceability assessments from 5.5 per cent to 5.25 per cent, effective 17 February.
This is the second reduction ANZ has made to its interest rate floor since the Australian Prudential Regulation Authority (APRA) scrapped its 7 per cent serviceability assessment rate.
A spokesperson from ANZ told RateCity that they “regularly review our settings for interest rates, including our serviceability floor, to ensure we continue to lend responsibly.”
“During 2019 we reduced our variable home loan interest rates a number of times and we have adjusted our serviceability floor accordingly,” the spokesperson said.
What does this mean for everyday Aussies?
Put simply, these changes to how home loans are assessed means applicants can potentially borrow more money.
Before APRA made the changes, banks checked that potential buyers could pay back the loan at interest rate of at least 7 per cent. If they could still afford repayments, they would be more likely to be approved.
Now, new applicants are assessed on their ability to repay the loan at 2.5 per cent above the home loan rate they are being offered, or the bank’s own interest rate floor, whichever is higher.
What else might impact your potential home loan?
There are a range of factors that come into play when applying for a home loan. This includes:
- The property type – Is it a new or existing dwelling?
- The type of buyer – Are you an investor, owner-occupier and/or first-time buyer?
- The deposit size – Is your deposit less than 20 per cent? If so, you may have to pay lender’s mortgage insurance.
- The state you intend to buy in – Costs like stamp duty vary from state to state. Your state may also offer first home buyer grants or concessions.
- Additional costs – Some homeowners borrow a larger amount and use the additional funds to pay for renovations or cover the costs of moving.
A great way to know if you can afford a home loan is to use a home loan calculator. You can enter the details mentioned above and the calculator will estimate just how much this can cost you in repayments.
Not only can this help you see how affordable a potential home loan would be for your budget, but you could also calculate repayments using the floor rate to get a better idea of if you may be approved.