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Smart ways to restructure debt before your off‑the‑plan settles
Worried your current debts might sink your off‑the‑plan finance? Here’s how to restructure credit cards, personal and investment loans so your borrowing power passes the bank’s test by settlement.
Key Takeaway
To qualify for off-the-plan finance, borrowers often need to restructure consumer and investment debts 6–18 months before settlement so they pass banks’ serviceability tests that include a 3% buffer and high assumed repayments on credit cards. The most effective moves are closing unused cards, paying down or consolidating personal loans, and restructuring home and investment loans into clean splits while preserving tax-deductible interest. A clear plan, with buffers of at least three months’ repayments in offset, materially reduces settlement risk and improves borrowing capacity.
Restructuring debts for an off‑the‑plan loan means cleaning up credit cards, personal loans and existing property debt so your borrowing power still works when the bank formally assesses you at settlement. Done well, it converts messy, high‑repayment debts into a structure that passes serviceability, protects tax deductibility and is actually liveable in a higher‑rate world.
Here’s how to tackle it in a focused way this week.
How banks see your debts at off‑the‑plan assessment
Even if nothing about your life has “felt” different, lenders reassess you from scratch before they release funds.
Key rules that hurt borrowing power
Most lenders will:
- Apply at least a 3% serviceability buffer over the actual rate (APRA guidance), so a 6% loan is tested at 9%.
- Assess credit cards at 3–4% of the limit per month, even if you clear them.
- Shade rental income to 70–80% and still use the buffered rate on investment loans.
- Include buy now pay later, HECS/HELP and novated leases as full liabilities.
That’s why “harmless” cards and small personal loans can blow up your capacity just when you need it.
Example: the invisible $30,000 problem
- $30,000 of credit card limits assessed at 3.5% = $1,050 p.m. assumed repayment.
- Tested at 9% with a 30‑year remaining term, that can slash borrowing power by well over $100,000 compared to having no cards.
Clearing or closing those cards can be the difference between your off‑the‑plan loan being approved or declined.
Step 1: Prioritise and attack bad debt first
Not all debts are equal. Off‑the‑plan lenders are toughest on short‑term consumer debt.
What to clear or reduce before anything else
- Credit cards and store cards – Trim limits to what you genuinely need, then close the rest. If you never carry a balance, consider cutting to one low‑limit card.
- Personal and car loans – High repayments with no tax benefit. Paying these out can massively improve capacity.
- Buy now pay later – Clear and close completely; some lenders will decline if they see heavy BNPL usage.
If your debt list is long, a structured consolidation using home equity can help. See the step‑by‑step process in /insights/step-by-step-consolidate-debts-using-home-equity-no-restart.
Comparison: leaving debts vs restructuring
| Scenario | Monthly repayments (indicative) | Serviceability impact | Tax‑deductible? |
|---|---|---|---|
| Keep $30k cards + $40k personal loan | ~$1,900 | Very negative | No |
| Pay out via 5‑year home loan split | ~$1,200 | Moderately negative | No |
| Clear $30k cards, refinance $40k only | ~$900 | Manageable | No |
| Clear both using savings + equity buffer | $0 | Strongly positive | No |
Figures are illustrative only but show how reducing or reshaping repayments matters more than the raw balance.
The strategy continues below
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