7 ways to borrow more money from the bank

Banks are meticulous. They want to make sure that if they lend you money … you can afford it.

That’s why the banks run your mortgage application through a whole bunch of tests.

In the mortgage world, we call that “servicing”. In other words – do you have enough income to service the loan?

But, most of these calculations are hidden. No one really tells you about them.

So many investors ask: “April, are there any ways to massage my finances so I can borrow more money?”

The answer may be yes.

And it often comes down to increasing your bank-recognised income. Or decreasing your bank-recognised expenses.

This is different from simply increasing your income or expenses. It’s about changing your situation so that the bank looks at it in a better light.

That’s why, in this article, you'll learn 7 practical ways to increase your servicing in the banks’ eyes. This can improve your chances of getting your mortgage approved.

#1 – Clear or reduce credit card limits

Credit cards, even when not actively used, can mean the bank lends you less.

In Andrew Nicol and Ed Mcknight’s book Wealth Plan, they call this the ‘Commitment Issues’ strategy.

That’s because banks will often assume a worst-case scenario. They’ll look at your application as if you’ve already maxed out your credit card. That’s even if it’s fully paid off.

For instance, let’s say you have a $10,000 credit limit. If you cancel that $10k credit card, you might be able to borrow an extra $72,000 for an investment property.

So that’s why your mortgage adviser might suggest cancelling your card (or reducing the limit).

#2 – Pay off short-term debt

Short term debt like hire purchases can also stop the bank from saying ‘yes’.

This includes things like personal loans or buy-now-pay-later schemes.

Even though you might pay off that hire purchase in a year, the bank will assess your numbers like those payments go on forever.

The higher your monthly repayments, the less income the bank thinks you will have to pay a new mortgage.

If you don’t have the money to pay off that debt straight away, you still have options.

You might consolidate this debt into your home mortgage.

That can spread the payments out over more years. Perhaps 30, rather than 7. So, in the banks' eyes, your minimum monthly repayments go down.

So even if you have the same amount of debt and you pay it off over the same time frame – the bank might lend you more money.

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• How much money do I need to earn to invest in property? (Article)
• How much do I need to earn?  (Calculator)
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#3 – Reconsider student loans

The bank is more likely to lend you money if you don’t have a student loan. That’s assuming everything else stays the same.

That’s because once you earn over $20k-ish, 12% of every extra dollar you earn goes towards the student loan.

Again, even if your loan is small (e.g. $10k), the bank will run your numbers like the student loan sticks around forever.

If you pay it off, you’ll have more income available to go towards a new mortgage.

Recently, I’ve seen instances where paying off a student loan made sense. The investors could borrow more money from the bank.

That said, I don't love this strategy – because student loans are interest-free. And if you use $10k to pay off your student loan – that’s money you then don’t have for your deposit.

So, have a chat with your mortgage adviser before you do this. Because it may (or may not) help you borrow more.

#4 – Avoid locked-in contracts

The banks often don’t like lots of recurring payments … like gym memberships where you have a long contract.

If you have lots of payments like this, you often can’t borrow as much.

If you’re not locked into your gym membership, I can label that as discretionary spending in your mortgage application. So, the bank doesn’t include it in their calculations.

But if you have a long-term contract and are “locked in”, the bank may challenge that.

Another example is paying for parking every day. If you can show that you can take public transport, all good. They might not include that in their calculations. So maybe you can borrow more.

But if there isn’t a decent alternative ... then the bank is likely to look at it as if that spending goes on forever.

#5 – Ask your boss for a raise

Next is the Earn Baby Earn strategy. Increasing your income. Many investors I work with are on the cusp of getting a ‘yes’ from the bank.

So, they use this as the trigger to ask their boss for a raise.

Bonuses and overtime are nice. But the bank won’t count all of that income when looking at your mortgage application.

That’s because that income isn’t ongoing. It’s a one-off. So they can’t say: “Oh, yes. You will definitely have that income in the future to help pay the mortgage.” Because you might not.

So, increasing your base pay often has the biggest impact.

Even a modest $5k raise can make a noticeable difference to your mortgage application.

#6 – Take on a flatmate or a boarder

Renting out a room can increase your income and help you borrow more.

For instance, charging $200 per week could add $800 to your monthly income. Many banks will factor this into their servicing calculations.

Now, some lenders might not count the full amount. But they often take a portion of it. This still gives you more income to afford a loan.

That said, banks often prefer if you already have that flatmate. So, be prepared to show proof of that rental income if you’re using this strategy.

#7 – Lowering KiwiSaver contributions

This is an interesting one: Lowering your KiwiSaver contributions.

One option is to temporarily reduce your KiwiSaver contributions. This increases the amount of money hitting your bank account. So, there is more income available to service a potential mortgage.

For instance, if Jen earns $100,000 and reduces her contribution from 8% to 3%, she could see an increase of about $96.16 in her weekly pay.

This extra cash counts when the banks assess her mortgage application. So, she might be able to borrow more.

But, the trade-off is that you will have a bit less in retirement savings. So, talk to an adviser and think this one through before using this strategy.

Bonus #8 – Don’t write off too many expenses in your tax return

Now, all business owners like to minimise tax. But if you overdo it… you might shoot yourself in the foot.

This is particularly true for self-employed people.

If you include too many expenses on your tax return, you’ll save tax. But, your income will look lower in the bank’s eyes.

That can make it harder to get your loan approved.

Yes, it may mean paying a bit more tax. But, lowering your deductions can make the bank more likely to approve your mortgage.

How do I get a “yes” from the bank?

Getting a "yes" from the bank isn't only about earning a good income.

It’s about your financial habits and how well you manage debt.

You should also work with a good mortgage broker. They will help you put your best foot forward.

You can also download our Investment Ready Spreadsheet here. This will give you a sense of whether you can afford your next investment property.