Forum Replies Created
Jac,
I’ll play devils advocate because you did ask for pros an cons…
The risk is substantially higher when gearing at this level. Jamie M pointed out the benefits of gearing when prices grow. Gearing will enhace the results either direction in the property market.
For example.
If you are geared at 80% and the market dips 10%. You lose 50% of your equity.
If you are geared at 90% and the market dips 10%. You lose 100% of your equity.
If you are geared at 95% and the market dips 10%. You lose 200% of your equity… Now equity is negitive.If you take the US and UK markets as an example. If you had 3-4 properties and were geared at 90% or even 80% a few years ago, you went bankrupt.
Property investors (compared to owner occupiers) in Australia are up to 5 times more likley to default (based on major banks current arrears / loans in collections).
Moral of the storey is gearing has benefits which are listed by other people above. It is also a tool that was previously adopted by every bankrupt in Australia.
For every millionaire in Australia that got their through gearing. There is someone else that lost everything due to unexpected circustances – e.g. Lost employment when they had a neg geared property portfolio.
I love gearing. But I understand the risk. Make sure you do to.
The common similarity between Millionaires and Bankrupts: is gearing!
Agree with Terry
If you push the loan to 250k (or take a credit card to get total limits over 250k) most the banks will give you 0.7% off. You need to cross 500k to get this at CBA. This will get you under the rates you are quoting.
Sounds to me like a bit of miscommunication…
In some cases when you develop property, or if you buy commercial property to owner occupy, you mght pay GST.
So for example if you buy property for $1.0M you need to pay $1.1M Inc gst. The bank lends say 70% of $1.0m (700k) and you need 300k plus costs and GST. Some bankers will give you a short term 100k overdraft to use to fund the GST until you lodge your BAS, get the GST back and repay the short term overdraft.
In his case the GST is obviously not included in the property Val for lending purposes.
Sound to me like either you bank / broker is miscommunicating info; or you have misunderstood: – least likley option is the valuer is out (ableit possible)…
Hi Dale, if you start with a smaller block you might get through retail e.g. Like a home loan. For example some banks will say contruction of up to 3 properties on one title is fine via the retail channel.
Commercial is a lot more complex; largly case by case basis.
Keep in mind some lenders (e.g. Westpac) will only lend at a commercial rate of interest where others (e.g. NAB) will still give a home loan rate. Your pick of lenders starts to get pretty skiny…
I wouldn’t walk in to the bank…
Branch lending is the “starting point” for a lender. E.g. Crap wage / often in their first 6-12 months from being promoted from a tellar. If they do well at this they move in to mobile banking or relationship management.
Mobile lending is also interesting. There are a lot of non-proformers who don’t write a lot of business. You then get the “top” mobile lenders that write 100M to 200M p/a and have a couple of staff.
Brokers are no different. There are far too many in Australia with the average broker writing less than 700k per month – or 1-3 deals. These are the guys you need to be wary of because lenders like CBA and Westpac may not deal with them (they won’t meet volume requirements).
You then get the good brokers. They lodge good volumes and often get preferred treatment from the banks. For example, a CBA diamond broker has RED Text on their deals that states “Diamond Broker”. These deals cannot be declined unless the credit manager calls the broker first, they get mortgage docs emailed to them within 24 hours of approval and their applications / settlements are processed by a seperate priority team.
In short – you can go to a bank and get declined. But then talk to a good mobile lender or good broker and get the same deal approved. Usually this relates to an experienced lender mitigating and explaining risks / reasons to approve a deal where most brokers simply fill in the forms and send them in – no comments, no notes and no relationship with credit.
The real question is how to work out who is competent and who is not… Unfortunantly I’d say the majority or brokers and bankers are not up to speed…
Depends who’s LMI rate the broker is calculating on. How many brokers do you think are really on top of true loan comparison when you take various LMI premiums in to consideration?
Most people ignore LMI because it’s added to the loan. Unfortunatly you still have to pay it back…
Qlds007 wrote:No Anz use PMI and to me bought them back to where everyone else was.They were the first to reduce to 90% and the last to come back but all in all good signs.
Banker were CBA covering the discharge, reg fees as well ?
If you get the right banker. They were recently paying conveyancing costs. My guy has up to $500 per client to cover costs – need to be around 500k to get that though – won’t happen in the branch.
Linar wrote:Hi BankerCare to share which lender offered the refinance deal?
K
CBA
Earlier this year I put a client with a major and saved them 6k in LMI compared to a loan contract they had nearly signed – was not a big loan either.
The majors often self insure which is cheaper. They also have slightly cheaper LMI in some cases due to the volume of business they offer the insurer.
Don’t think that LMI is always the same price : – ). Non banks and credit unions are usually a bit more…
Sounds good. Very similar to CBA so wondering how much of this is influanced by the insurers? Do ANZ also use Genworth?
I got a letter from another major today offering no fees If I refinance. Appl, Val, and even annual fees waived for the life of the loan! 6.68% with min loan of 50k. Interesting to see them getting more aggresive…
I only love banks at the moment…
If it’s a matter of trust; in the current market I’m happier to trust them to know there funding position is stronger than non banks and DEF is small so if I have to move unexpectedly I can.
Re the annual fee. In the original post it’s alreay paid – therefore the new loan attracts no extra cost so why pay over $1000 in establishment fees to another lender with high DEF?At a loan of 320k (as you mention above) would be 6.54% at NAB. Cheaper rate, less DEF and full service product…Blight have an annual fee but his covers all transactional banking as well – the even go another 0.1% off if you ask nicley…
miraclehomeloans wrote:I can beat all the banks rates for starters, but as for the question I would suggest go with a second lender. The reason being that if you want to purchase further property in the future and you reach your limit with one bank, you will always have a second option. Having 2 properties with one bank is no problems but when it gets to 3 or 4 you may find they place restrictions on your borrowings.
Plus when a bank assesses you they add a margin to the interest rate of the proposed loans so if all you loans are with one bank some will add this margin to all your loans and decrease the amount you can borrow where as other lenders may only take into account the actual loan repayment, allowing you to borrow more. It might not affect you now but it may in the future so plan you strategy early on and it will save you having to refinance at a later date.The rate on your site is 6.59%. Sorry but NAB is cheaper. I also just did a 6.56% with CBA which was an extra 0.1% of the Standard rate of 6.66%. in the case of CBA there were no fees at all E,g, nil Val, legal, app fee etc.
Your wedsite quotes fees as:
application: $400
valuation: $250
legals : $297
settlement fee: $150 (minimum)There is no mention of your deferred establishment fees – love to know what they are?
Is your DEF 2.0% like ratebuster and other mortgage managers (versus bank$700)…Also re the sensitized margin on rates for servicing. It only usually applies to the new loans – not existing debt. Noting your deals are likley all mortgage insured so you a using their calculaotos – which are generally worst than the banks?
Out of curiosity – it appears you are a mortgage manager – who is the wholesale lender ?
Personally I think you will find it very difficult.
You mention you have little equity so yes – you will need an equity partner / cash man.
You’ve also said it will be your first project – getting a cashman to back an inexperienced developer on their first project (with little equity) would be a bit challenging.I am being devils advocate. Great to see the ambition but you need to have something to bring to the table…
You could get maybe refinance to 90% of your current property (subject to LMI). E.g. Property value x 90% less existing debt = fund available.
Realistically – When you then go into your project you should aim for having 20% depoist for both land and construction costs – this is assuming you qualify for finance for the debt long term. If you are reliant on the sales to repay the debt you will need to go via a commercial banking channel – this might require more deposit, fees and a higher rate.
It can also be hard to get an equity partner for a project before knowing what the project is. For example- lots of people get the land and plans etc before finding the investor. This way you have something to bring to the table (ownership or contract to buy the site) however it requires the ability on your part to provide at least some initial outlay of funds.
Bit of a chicken before the egg scenario…
Eloi has a small point re the under supply (US and UK both claiming undersupply is correct b4 the crash). However most people miss a fundamental point which is supply of funds.
Funding over the last 10 years has increased dramatically in Australia. A graph curve showing funding supply increase over the last 10-20 years is followed by a growth in property prices – the lines almost identical. More money in the market obviously pushes up prices.
The issue we have now is long term international debt getting refinanced by our banks to higher rates – which they will start passing on soon, the reduction of stimulas in Australia which is around the corner and the fact both sides of politics are now promising to repay debt. In addition to this ASIC has told CBA and Westpac (who currently write some months over 70% of loans in aust) that they are over exposed to the housing market. Both intend to holt growth of their books / or at least slow the pace of growth.
So in short – we are likley to be entering a period where we can expect a reduction of funds in the Australian property market – whether we take the steam out of the bull or fatten up the bear is yet to be determined…
Personally I think it if your smart – it doesn’t matter. Cashflow is king. If your cashflow is in order you have nothing to worry about. If you are neg geared relying on growth… Well…
I also prefer to see property affordable so everyone in Australia (within reason) can work, support a family and have a home. Buying a house in the major cities should never be out of reach for the average Australian. A future Australia where only wealthy immigrants and people with family gifted depoists can buy is not an Australia I want to live in.
If you buy only for growth – and are neg greared – and get burnt…. You shouldn’t have been greedy… If your smart; there might be some great oportunities around the corner!
I think your comparing the standard variable rate of the banks with the rates of the credit unions.
The banks discounted rates almost always come in better. I’ve never seen someone take a standard variable with a bank without a discount.Last time we argued this on a post you could only come up with a couple of dodgy mortgage managers with 2% deferred establishment fees and history of shafting people with the GE / Challenger out of reserve increases – they also had legal fees and Val fees etc
You should be able to get another loan then with – NIL fees. The annual fee already being paid should cover Val, establishment fees etc. If it’s a good rate just stay put and keep securities seperate…
Jamies got a point but there’s not many creditable lenders out there that will beat NAB, ANZ or CBA on rates / fees etc
If you’re already on a pro pack there should be no set up fees, no Val fees, no settlement or legal fees etc etc… If you already pay anual fee it should remove all fees from the new account. No additional annual fee is you already pay one.Eilatan- what bank are you with?
Are you already paying an annual fee?If you don’t cross and keep the securities standalone – there is no major benefit to split banks.
If one bank; At least when you apply you don’t need loan statements + credit card statement etc. Some banks don’t need a privacy statement if ones been signed within the last 2 years, no pay slips or confirmation of rental if depoisted in their accounts.I’ve had new loans approved within 10 minutes e.g. Approved over the phone upon first enquiry. Contracts ready to pick up in a branch 30 mins later.
Depends what’s important to you and what level of service you want. Split banking will slow down future approvals. If you not crossed you can always refinance individual properties if you need to in the future.
Banker
