High risk borrowers may not be able to get a mortgage from a traditional borrower such as a bank. They may not be able to get a mortgage without having an independent guarantor. This is a person who undertakes to pay the debt if the borrower defaults. High risk borrowers may also find that they are asked to pay more interest which is a reflection of the risk they pose to the lender.

High risk interest rates have actually increased even though mortgage rates have followed the RBA cash rate and fallen by around 150 basis points since the start of 2008. The spread of one of the major banks’ mortgage rate has increased by 1,100 basis points to 1,350 basis points. Mortgages rates have dropped while interest rates on other credit products, such as credit cards, have increased.

Even with the injection of extra funds into the mortgage market by the Federal Government, only the most creditworthy will get credit. Bankruptcies, although low by US standards, are still dramatically up on 10 years ago, to some one in 70 of the population overall. Only lenders of last resort touch people close to bankruptcy, and their interest charges are well beyond anything a long-term borrower could sustain. Many pay-day loan outfits, even when lending on mortgage security, charge 10% a month or 15 times the average loan rate.

New stricter criteria in Australia mean that the security and income requirements for high risk borrowers are higher. They’ll need higher deposits, too, maybe as high as 30% of the value of a property. That’s $120 000 on the average mainland capital city home. Never has it been more important to borrow within your means.

The maximum amount you can borrow under the Uniform Credit Code is tied to your income, which limits your repayment capacity. Proof of income is in your tax return, so if you’ve understated your income as a self-employed worker, do not expect to simply be able to borrow against your assets and still retain the retail consumer rate.

You’ll end up on a low-doc rate even with a lot of collateral, because the Code says you can’t get a normal home loan. If you’re claiming that you suddenly have increased your income, be prepared for the lender to carefully scrutinise claims of overtime, inheritances or even having rented out the spare room.

As a result of people learning the lessons of sub-prime, processing times for loan applications have increased as due diligence is carried out. If you have a poor credit rating, the shaky economy mans you’ll have to do some convincing.

There are plenty of predatory lenders out there so be careful that the low-doc rate you apply for is not too far above the market rate. Ensure you understand all the penalty rates and charges, and special conditions like exit fees and early-repayment penalties which might tie you into an unfair loan contract. Keep watching the Government ASIC scam site fido for details of predatory lenders and dodgy scams.

Author Bio: Before you apply for a home loan, contact a professional Mortgage Broker for expert advice. Contact us at http://www.moneynet.com.au/ today http://www.moneynet.com.au/

Category: Finances
Keywords: mortgage broker, mortgage brokers