The Relationship Between Credit Cards and Mortgages

Information verified correct on October 21st, 2016
Watch Out! Owning credit cards can be both a boon and a bane when applying for a mortgage loan. Watch Out! Owning credit cards can be both a boon and a bane when applying for a mortgage loan.

Negative Impacts of Credit Cards on Mortgages

Customers applying for mortgages may learn very quickly that the available credit limit on their credit cards could negatively affect your borrowing capacity. This means the higher your credit card limit is, the lower your borrowing capacity for a mortgage goes.

When you’re borrowing money, the bank will check out how much income you receive in your hand after tax. Then they’ll deduct living expenses, based on figures provided by the Australian Bureau of Statistics for the number of people in your household.

Then they’ll figure out what your available credit limit is on all of your credit cards and they’ll automatically assume those cards are all maxed out. The calculation the assessor will use is around 3% of those combined total limits. This figure is also deducted from your available income.

So even if you repay your balance faithfully every month in full, high credit limits can seriously reduce the amount you can borrow on a mortgage.

Another negative link between credit cards and mortgages is your previous repayment history. If you’ve been a little lapse in keeping track of your credit card payments, this will be reflected on your credit report. A negative credit listing like a default could seriously harm your attempts of borrowing money.

Mortgages are long term, large loans. The banks will immediately figure that if you don’t have the discipline to handle a small debt like a credit card, you may not be a good candidate for a much larger loan.

Positive Impacts of Credit Cards on Mortgages

Credit cards aren’t all bad, though. There are times when owning a credit card and using it responsibly could help you repay your mortgage much faster.

Here’s a direct example:

Let’s say you have a mortgage that is linked to an offset savings account. All of your income goes into that offset savings account each month and helps to offset the amount of interest you pay on your mortgage each month.

Obviously, by leaving your income in that account for as long as possible, you’re helping to reduce the amount of interest you pay. As your mortgage payments are amortised and contain principle and interest components, this will increase the amount you pay off your principle and reduce the amount you pay in interest.

In order to leave as much of your income in that offset account each month, you could use your credit card to pay for your expenses, your bills, and other expenditure that arises. Take advantage of your credit card’s interest free days by paying all those things early in your credit card statement cycle.

During these interest free days, you’re benefiting from leaving your income sitting in your account, offsetting your mortgage interest.

Then a few days before your credit card bill is due, you repay the amount you spent in full from your savings so your credit card balance is back down to zero. By this time, you should have been paid your salary again, which begins the cycle all over again.

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Credit Cards Comparison

Rates last updated October 21st, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info
NAB Low Rate Credit Card
The NAB Low Rate Card offers 0% p.a. on purchases and balance transfers for 15 months. This card also comes with a low annual fee.
0% p.a. for 15 months (reverts to 13.99% p.a.) 0% p.a. for 15 months with a one off 3% balance transfer fee $59 p.a. Go to site More info

* The credit card offers compared on this page are chosen from a range of credit cards has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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