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
“We aim for Perfection, however excellence will be tolerated.”
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 MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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
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
FelicityFelicity
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 MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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
FelicityI 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
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 MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for all of your replies.
Michaelk
“We aim for Perfection, however excellence will be tolerated.”
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