We cover practical tips like paying off HECS debt, using a skilled mortgage broker, and managing credit card limits. You’ll also learn about the benefits of productive debt, rentvesting, and optimising loan terms. These insights can empower you to make informed financial decisions and grow your wealth effectively.
.jpg)
“Ravi, how do I increase my borrowing capacity so I can go out there and either get a bigger place to live in or buy some investment properties?”
In this article, I’m going to share with you some hacks that people are aware of, while some are not, and some are just genuinely amazing.
If you’re interested in my thoughts, then definitely keep reading.
Now, the thing that stops you from purchasing your dream house or investment properties is your:
It’s super difficult, and that’s why I often say that:
It's going to help you grow your portfolio with leverage, but most people just stop there, especially if you’re in the Buyers Agency space or you’re a real estate agent, you’ll hear that property is the only thing you should invest in.
I say that when you can’t get a loan, you should still be active, and that might mean investing in shares, Exchange-Traded Fund (ETF), and everything in between. So I would say take a dual approach.
When you can’t invest in real estate, invest in other things to keep those muscles growing. You might use money from there to come back into property, and vice versa.
Now, I’m going to share with you some tips and tricks to increase your borrowing capacity.
If you have a HECS debt, consider paying it off.
This makes a big difference, but not in the way you think.
I often have conversations with people who say: Yeah, I’ve got HECS, but I only owe $10,000, while others say: I owe $1,000.
To calculate how much your borrowing is affected by HECS, it’s more about how much you earn.
This means:
Therefore, even if you owe $10,000, you could end up paying more than someone with $100,000 in HECS debt because it's based on your income.
If your balance is only $10,000, paying it off completely might unlock more borrowing power.
Although some argue it’s not the best investment, it can allow you to unlock much more borrowing capacity.
From a bank's perspective, when they look at their servicing calculators, they’ll see your income—let’s call it $1,000—and then note that you’re paying $200 a week toward HECS. They’ll calculate your income as $800, not $1,000, and that could stop you from getting the next property. With a smaller HECS balance, you could use your cash to pay it off, but there are other ways to handle it. That leads me to my next point:
You need a really good broker.
If you’re in 2024 or 2025 and trying to find the best loans, you need to outsource it.
Brokers are completely free. (If you need help, hit me up via email at ravi@searchproperty.com.au, tell me where you're at, and I can point you in the right direction.)
Right now, the rates you see online and the ones you get directly from the bank are very different from what brokers can offer.
Brokers are free to use, and they can provide you with service information faster. You could spend weeks trying to figure out which lender offers what, or you could go to a broker who has access to all of them.
The bigger question isn’t just about interest rates. What you need to be asking yourself is, "How do I get the loan?" NOT "What is the lowest interest rate?"
The lowest rate may come with a product that doesn’t offer you much choice. It might also mean the bank’s servicing calculators will reduce how much you can borrow. So what’s more important to you: growing your wealth or reducing expenses?
You can’t do both effectively.
If you’re in the acquisition phase of your strategy, focus on building wealth. The better question to ask is: How do I get there?
I know people who have spent weeks trying to figure out which bank offers what loans, only to make the wrong decision. By the time they came to Search Property, they had chosen a product based on the lowest interest rate, which didn’t serve their purpose. After speaking with our brokers, they realised they could borrow $200,000 more, which meant they could buy in a better area, aligning with their long-term goals.
You might say: But Ravi, I pay off my credit cards all the time, and my balance is zero.
Banks don’t see it that way. They look at your credit limit, not your balance.
If your balance is $0 because you don’t use your credit card or you pay it off in full, but your limit is $10,000, they will still treat that $10,000 as your liability. This is because, theoretically, you could use that full amount at any time, and it would mean high-interest rates on the credit card.
As a result, it becomes a liability, which will negatively impact your borrowing capacity.
Think of productive debt as good debt and non-productive debt as bad debt.
When you purchase your own place, it’s unfortunately considered bad debt because it doesn’t generate income.
People say that because the rules of the game suggests:
In this case, your own home is considered non-productive debt because you're not technically making any cash flow from it; you’re paying off a loan.
In contrast, non-productive debt is treated differently from productive debt.
For instance, productive debt would be something like an investment property that generates income for you, which is considered good debt.
Now, there’s a concept called debt recycling, which allows you to turn non-productive debt into productive debt.
Now, the reason why this affects your borrowing capacity is that you get negative gearing and deductions, both of which are calculated into bank calculators. If done the right way, these factors can help increase your borrowing capacity.
You might find that if you run a cost-benefit analysis of buying your own place versus renting, especially given how high interest rates are right now, you're probably paying more toward owning the house you live in.
Some people might argue: Well, that's my own asset.
However, if you're trying to build wealth and maximise your borrowing capacity, you need to assess which option costs more. At this point, buying is definitely costing you more than renting.
If you rent, you could adopt a strategy known as "rentvesting," which would increase your borrowing capacity significantly. This could allow you to purchase one more investment property.
Now, some might think: What’s the big deal with one more investment property?
Consider this: an investment property worth $500,000 that grows by, say, 10% a year adds $50,000 in tax-free equity. To generate that amount from your job, you’d have to earn $80,000 before tax, and the best part? You get to earn this passively. So yes, one extra property makes a big difference.
When it comes to renting, buying, and investing, you must be purchasing in the right areas.
I thought this was common knowledge when I first wrote this out, but after reviewing many portfolios, it surprises me how many mistakes people make despite all the information available.
The lesson remains: your investment decisions must be driven by data, not gut feelings or emotions.
If you’re not confident in making these decisions, you need to outsource this task as soon as possible.
I'm not just plugging the service we offer. The reason our team is so large is because many people, like yourself, genuinely need this help. We often go through life unaware of what we don't know, but rather than ignoring it, I suggest either learning for yourself or, if you want to move faster, outsourcing it to leverage someone else’s expertise.
That’s how many of our clients end up buying their third, fourth, and fifth properties within 12 months—and I’m talking about properties worth $400,000 to $500,000, not $100,000. So, if you need help, book a FREE discovery call with my Search Property team.
I've got two final tips for you.
If your mortgage broker hasn't told you, or the person at the bank that you think is a mortgage broker hasn't shared this information, you need to find someone else.
That's why I give you my email because I think a lot of people don't know this.
I often mention that if you go with interest-only, your cash flow is in a better position.
This means your holding costs are a lot lower, and in the game of real estate, it's about who can hold as many assets for as long as possible.
The way to optimise this is by reducing your expenses, reducing your holding costs, allowing you to hold for longer.
Now, one way to do that is by choosing interest-only versus interest + principal loans.
What you might not know is that if your borrowing capacity is tight and you're comfortable with paying a little extra in the beginning, you might be better off going with an interest + principal loan rather than interest-only.
This is because:
Interest + Principal increases your borrowing capacity.
Instead of having to repay the loan over 30 years, the bank will calculate your interest-only period and then use the remaining period to calculate the entire repayment.
For example, if you go with interest + principal, they'll calculate it over 30 years.
Meanwhile, if you choose a 5-year interest-only period, they'll calculate it over the remaining 25 years, but the mortgage stays the same. This means your repayments are higher, based on the bank's calculations.
Think about it: If the bank looks at a $400,000 loan over 30 years. Do you think the person with 30 years to repay will pay less or more than someone with only 15 years left on their loan?
According to the bank, the person with 15 years has to make larger repayments. What you can actually do is extend that loan term back out to 30 years, which lowers your repayments.
Now, some people argue that they don't want to do that because it means paying more interest over a longer period of time. While that's true, you need to think about the bigger picture.
This is why strategy is so important.
For example, if you buy one extra property at $500,000, even if it grows at just 5%, that $25,000 tax-free equity is going to be more than the interest you're paying anyway.
That's why it's crucial to have the right team around you. If you need help, you may visit Search Property, and book a discovery call with my team—it’s totally FREE!
Hope you guys have enjoyed this one, and I'll catch you in the next article.
Thanks, guys!
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
.png){kind=icon}
.jpg)
.jpg)
.jpg)
.jpg)
.jpg)
.jpg)
