LOC Setup

Hi Tom

Hate to say your Broker is correct.

In fact some lenders will not even issue the letter of offer until such time as you give them a copy of the purchase contract or similar to evidence where the funds are going.

Not sure who you are going through but just get your Broker to switch lenders and use someone who doesnt impose such condition or where he can put some weight on the lender.

Hey,

It really depends on the lender. The bank is asking you what you're going to do with the money as they don't want you investing it in something really risky. To give an example, you might be using that money as your equity in a highly speculative industrial subdivision project. If that project went sour, you could easily owe the bank more than however much you thought that industrial land was worth.

Sounds like what you're doing is no big deal – I'd just show them the purchase contract if you have it, or tell them exactly what sort of property you're looking at purchasing. They'll probably be ok with this.

On the flip side, you sometimes get a dodgy bank manager who won't find out your full story and that's why sometimes people get away without telling their bank what the cash is for.

This just seems to be really bad time to change lending criteria.

I, for example, was thinking about using funds of upto 80% (increase borrowings from my current level of 70%) of my property valuations to fund other investments . Some options being considered include…

A)     Invest in mutual fund

      A property purchase overseas (via my family).  Explaining all of this to the bank and getting property papers etc seems difficult.  

I am taking loan against my current property – Really to me it seems to be a case of it should be none of your (banks) business what I do with that money as long as I am meeting repayments.

What is a sensible reason to give to a bank manager which he should not be able to refuse?

You will need to tell them where you are going to invest it. ie managed funds etc. They may want further proof or even insist on controlling the payment of funds.

Banks will want to know what you are investing in as if you were to gamble the money away that is reducing your net worth and will adversly affect their position if they need to take recovery action.