Have you got the best possible interest rate on your equity loan? That’s great, but it isn’t going to do you any good if your application is declined! Before you apply for a loan, take the time to learn what the banks are looking for and present your application to the right lender in the right way.

Firstly, many banks simply are not interest in equity loans. They don’t have the appetite for this type of business. In particular many lenders do not like to consolidate multiple unsecured debts. They know from past experience that this type of application is a much higher risk, and so typically if there are more than three debts being rolled into one then they will decline the application.

There are specialist lenders that actively seek people who are consolidating debt. Typically they will want their borrowers to have a lower LTV ratio (also known as the LVR). Ideally your loan should have an LVR of less than 80%, that means that your mortgage is no more than 80% of the valuation of your house. The better your repayment history then the better your rate & the better your chances of approval. You must have real estate that you own as security for an equity loan.

The loan purpose is the other main area that catches people out. What are you releasing the money for? Did you know that each lender has their own opinion as to what is a low risk loan purpose & what is a high risk? As a general rule the higher risk loans types are for consolidating tax debt, going on holidays, “unknown or undisclosed” purposes or business ventures. Low risks are refinancing to get a better interest rate, investing in shares and buying an investment property.

There are a range of other lender guidelines that can catch you out if you aren’t careful. Most lenders have guidelines requiring the following:

• Minimum time in your job, usually six months.
• Minimum asset position, usually dependent on your age.
• Minimum serviceability ratio, you must be able to afford the loan even if rates increase.
• Minimum credit history / credit score.
• Acceptable security as collateral for the loan.

Use the advice of a good mortgage broker such as Dargan Financial to help you choose a lender that you qualify with and to negotiate the lowest interest rate for your equity mortgage. Navigating the minefield of bank policies is impossible for someone who is outside of the industry, it is essential that you seek professional advice.