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Why Was My Mortgage Application Rejected: Test Interest Rates

You’ve done all the maths and checked that you can afford the repayments on the mortgage you need to buy your first or next property. You confidently head down to your local branch to then leave confused and frustrated because they’ve rejected your mortgage application. How can that be? 

Keep reading or watch the video to find out one of the behind-the-scenes reasons why the bank has rejected your mortgage application. 

Why Your Mortgage Application Was Rejected Pt.1

Banks don’t use real interest rates 

What the bank won’t tell you is they use test interest rates when they are calculating affordability. A test interest rate is an interest rate that is higher than the current, more realistic interest rates. The bank uses this higher interest rate to check serviceability and if you pass with the test interest rate, then they’ll consider you for a mortgage. 

Why do banks use test interest rates? 

Banks are always looking to cover their bums. If you can show you can still afford the mortgage using an interest rate that is much higher than the current interest rate, the bank feels confident that you’ll still be able to afford the mortgage if and when interest rates go up. 

 Imagine you could only afford a particular mortgage up to 5.99% interest. You’d be at a much higher risk of defaulting on your mortgage if interest rates when into the sixes. The bank gets paid when you pay interest, so test interest rates provide an extra layer of protection for their revenue. 

Why Was My Mortgage Application Rejected