Bank statements and mortgage statements are both records of financial transactions of different types. If you are a first home buyer or a homeowner, you would have most likely heard of these terms but do you know how they differ?
What is a bank statement?
A bank statement is an official summary of financial transactions that occurred within a specified period. Most banks issue statements monthly, quarterly, or once in six months. These bank statements contain important information such as your balance at the beginning of the statement period, money deposited and withdrawn from the account during the period, any interest earned and the remaining balance at the end of the period.
Simply put, your bank statement provides a summary of your income and how you spend it in a given period.
Why do lenders ask for your bank statements?
When you apply for a home loan, you are generally required to provide your bank statements for the last two or three months. But how do your bank statements help lenders assess your mortgage application?
The answer is straightforward – your bank statements reflect your past financial behaviour, which helps lenders assess whether or not you’ll be able to pay your mortgage installments on time. For instance, your bank statement can tell lenders how much money you earn. They can also find out whether you are paid a regular salary, or if you earn an inconsistent income, which can happen if you are self-employed.
Your bank statements can also tell a lot about your regular expenses, including anything you missed in your loan application. If your account is overdrawn each month or your balance is almost zero by the end of each month – it could give lenders the impression that you live paycheck to paycheck, and you might not be able to afford a mortgage.
Another important thing lenders want to see in your bank statement is proof of genuine savings. Genuine savings refer to the money saved by you from your income over a period of time. Having genuine savings in your account shows you can live within your means and save money for future goals, like your home loan deposit. This tells lenders you are financially disciplined and likely to meet your loan obligations in future.
What is a mortgage statement?
A mortgage statement or a home loan statement is a record of financial transactions issued by your mortgage lender. Your mortgage statement is generally issued every month, and it shows how much of your loan you have repaid and what portion is remaining.
When you open your mortgage statement, you’ll see a statement period, which tells you the dates covered in the statement you are reviewing. You’ll also see your opening balance, which refers to the money owed at the beginning of the statement period, and closing balance, which is the debt outstanding on your mortgage at the end of the statement period.
Your mortgage statement also lists any additional money (or credits) paid into the mortgage during the statement period, any amount withdrawn (debits) from it, your offset account balance, and your current interest rate. Thus, your mortgage statement helps you understand where you are with respect to your home loan. It is also a record of your repayments, and it’s advisable to keep your mortgage statements for at least three years.
What is the difference between bank statements and mortgage statements?
Bank statements and mortgage statements cover different financial products. Lenders generally require you to provide a few months’ bank statements to help them understand your financial habits before approving you for a mortgage. A mortgage statement is only issued after you take out a home loan and start repaying it. You don’t need to provide a mortgage statement to open a bank account but not paying your mortgage on time can hurt your credit score and impact your ability to secure new credit in future.
