All Topics / Creative Investing / early pay out penalties

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  • Profile photo of MichaelKMichaelK
    Member
    @michaelk
    Join Date: 2003
    Post Count: 24

    Hi all,

    Just curious to see what other wrappers do with their contracts. My contracts have a clause that state if my wrappees payout within a 2 year period that they will pay a 6 momnth interest penalty. Now i have been debating the morals of this. I know that we the wrappers still need to get something out of the deal if they do refinance early, but is this a fair penalty. My solicitor said it was the norm, but i would greatly appreciate feed back from other wrappers. Look forward to reading some replies.

    Regards

    Michaelk

    [email protected]

    “We aim for Perfection, however excellence will be tolerated.”

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I think the earlier they get out the better. You will make your quick gains on the markup, and then can go and do another one to replace the passive income and get another deposit etc. So I wouldn’t put too much penalty, maybe mirror your lenders early exit penalty.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of FWFW
    Member
    @fw
    Join Date: 2002
    Post Count: 478

    Remember, too, that if something is in your contract, you have the option whether or not to apply it.
    For example, if you have a few people who could refinance but aren’t moving on, you could send them a Christmas Special! letter, saying you’ll waive the early repayment fees for anyone who refinances before Christmas….

    Keep smiling
    Felicity 8-)

    Profile photo of FWFW
    Member
    @fw
    Join Date: 2002
    Post Count: 478

    I do have a clause in the contract that allows me to oncharge any early repayment fees from my lender… just noticed that point in Terry’s post.
    Again, though, it’s my choice whether to charge it or not.

    Keep smiling
    Felicity 8-)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Felicity

    That is a good idea. That way you could encourage them to refinance rather than drag it on.

    BTW, what do you prefer? The long term cashflow or the quick exit approach?

    Terryw
    Discover Home Loans
    Mortgage Broker
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of FWFW
    Member
    @fw
    Join Date: 2002
    Post Count: 478

    A bit of both!
    Funnily enough, no matter how they start, I still seem to end up with both. I had one couple who looked likely to refinance quickly go bankrupt, so they’ve turned into long term cashflow buyers.
    Mostly, though, I do aim to put in people who are likely to be in a position to refinance reasonably quickly, and then I see what happens!

    Keep smiling
    Felicity 8-)

    Profile photo of petebellpetebell
    Member
    @petebell
    Join Date: 2004
    Post Count: 38

    I have been wondering, when the wrapees eventually refinance, is it a refinance, or is it really that they bring forward the settlement of the loan that they have with you. Dont you as the wrapper actually own the property? ie it is your name on the rates notice.

    So when they “refinance” and pay you out, they are really getting a loan through another bank for the pp that you agreed to in the wrap, and you get your money and title to the property transfers into their name.

    Is that right?

    Pete

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Pete, your spot on. I’ve ‘refinanced’ two wrap clients with the same bank (as a broker, not a wraper). The first time, they didn’t know what to make of it, and took it a s a refiance, teh second time, they would not consider it a refinance but as a purchase and would therefore only lend on the contract price of 18 months ago and not on current value.

    Terryw
    Discover Home Loans
    Mortgage Broker
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of MichaelKMichaelK
    Member
    @michaelk
    Join Date: 2003
    Post Count: 24

    Thanks for all of your replies.

    Michaelk

    [email protected]

    “We aim for Perfection, however excellence will be tolerated.”

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