Lenders are paying more and more attention to the little details of your loan application and credit history – such as loan and bill repayments, which you might not think would be considered.
Not being aware of and managing these little details may impact on your chances of securing finance in the future – but it can be simple to put things right.
Timing is everything
One example where borrowers can get caught out is when there is a mismatch in timings between when loan repayments are due and household cash flow – such as when salary or wages are paid.
For example, a couple purchases a new home which settles on the 8th of the month. Their monthly home loan repayment is then due on the 8th of each month thereafter.
However, both are paid monthly, receiving their pay on the 15th of the month. Their home loan statements therefore show the payment was rejected on the 8th of each month due to insufficient funds being available and is being paid on the 15th instead.
This is viewed as the home loan being in arrears – even though the payments were made, albeit late – and often brings with it late and penalty fees.
When the couple later go to refinance their home loan or look to buy a new property and secure a new home loan, the lender views their home loan statements and considers them a higher risk due to their home loan being constantly in arrears.
The same problem occurs with personal debt such as car loans, store cards and lines of credit. However, late payments with these services also have the added negative impact of significant penalty and late fees, or high interest charges.
Be one payment in front
The best way to avoid these fees and charges is to make sure that you know exactly when your repayments are due and be at least one payment ahead from the beginning of the loan.
For example, ensure you have the funds available to make your first loan repayment on the day your loan settles so you’re ahead of your repayments from day one.
Also, it’s worthwhile to try to time the settlement of the loan to be in sync with your pay cycle, so you know every month that your home loan or any other loan repayments will be made on time.
Loan structure important
The above situation highlights the importance of understanding how your home loan works and is structured, and having someone – like your Smartline mortgage adviser – explain these aspects to you.
If you’re securing your loan through a Smartline mortgage adviser, they’ll make sure that you understand how the loan works and can work with the bank on your behalf to ensure the timing of your repayments aligns with your pay cycle.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.