Debt Stress Testing in Australia
A debt "stress test" is a method of determining if one's finances are sturdy enough to handle an unexpected shock such as unemployment, extended
illness, or divorce. Many Melbourne mortgage brokers will offer (or even require) this service before making a loan, to ensure that a borrower can
continue to make timely payments even in the result of a financial disaster. While somewhat unpleasant, the fact that a person's credit could survive a
major financial setback makes them an ideal candidate for a loan, and may significantly decrease their interest rate and their monthly payments since
they are much less of a risk to a lender.
To "stress test" one's finances, it is necessary to gather an extremely high quantity of financial detail, especially in regards to one's earnings, the value
of one's property, and the nature of their investments. This data is then fed into a complex series of computer models, which determines the borrower's
ability to repay the debt while maintaining a modest standard of living in the event of a financial disaster. Since any small error can lead to an
erroneous simulation during the test, accuracy and complete openness is required. While some borrowers object to such high levels of financial
openness, hiding assets or lying about them tends to work against the borrower during the simulation. If the simulation's accuracy is in doubt, then it is
useless for the purpose of lowering loan payments, and the borrower will not receive the full benefits.
The current shakiness in the mortgage market has led many Melbourne mortgage brokers to require or at least highly suggest that these tests take
place. This is because if a borrower successfully passes the test, then the lender knows that the loan is a very low risk and thus worth taking. They
may not only award the borrower with lower fees, but they may be able to find a loan that more closely suits the borrower's finances, due to the fact
that they now know those finances in detail. Thus, having a stress test is