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Viewing 18 posts - 1 through 18 (of 18 total)
  • Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Hi all,

    Interesting case happened last week.

    A self employed prospect wanted to explore the option to refinance his existing properties through us and to get ready to buy another IP.

    Asked him for his financials and established that after we refinance all his properties to P&I (to maximise borrowing power with CBA), his borrowing power for his next property would be only $350k.

    He was very disappointed and surprised to hear that so he contacted his existing broker and asked for his borrowing power.

    The broker came back with the figure of 850k! Without changing his existing to P&I! Also with CBA.

    HUGE difference from my calculations (500k) so I double checked it with the BDM and sure enough, my calculations are correct.

    Told the BDM the story above and he has no idea how the differences could be so big.

    It’s a mystery to us. Was bothering me all weekend.

    Happy to hear any thoughts/ideas/theories that could explain the above.

    Thanks guys! 😊

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of Jess PeletierJess Peletier
    Participant
    @jaylou
    Join Date: 2009
    Post Count: 12

    The other broker was prob a noob who didn’t change the repayments to P&I over 25 yrs in the calc :)

    Jess Peletier | Seed Financial
    http://www.seedfinancial.com.au/
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    Mortgage Broker - Perth and Australia wide

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    The other broker was prob a noob who didn’t change the repayments to P&I over 25 yrs in the calc :)

    That was my first thought as well! 😂

    The broker, however, has been well over 10 years in the industry and the prospect is confident the broker wouldn’t make such a silly mistake.

    There is a good chance, I guess, that he did some mistake somewhere and only when the borrower will be ready to buy is when he will discover that he can’t borrow that much but I’m just wondering if there could be any other explanation that I’ve missed…

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Easy – one of you are wrong! :)

    Treatment of debt, add backs etc all can make huge swings in capacity.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
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    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Not enough info to make an educated guess.

    Too many inputs/outputs to consider with S/E financials.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Easy – one of you are wrong! :)
    Treatment of debt, add backs etc all can make huge swings in capacity.

    That’s for sure! 😂

    Only debts are the properties. Not much add-backs (depreciation and interest).

    What else can it be? So odd…

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Not enough info to make an educated guess.
    Too many inputs/outputs to consider with S/E financials.
    Cheers
    Jamie

    Interesting… Are you happy to elaborate? Happy to discuss offline if that’s easier and post here summary for the benefit of all?

    Totally agree that at the end of the day, we will be only guessing as until we see the other broker’s calculator (which we never will), we won’t know for sure.

    Cheers!

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Probably non-disclosure. leave off a kid, a loan etc and serviceability booms. Bank staff do it as well as brokers – fraud

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Probably non-disclosure. leave off a kid, a loan etc and serviceability booms. Bank staff do it as well as brokers – fraud

    Definitely an option.

    Can’t leave off a loan as they are all with the same lender.

    Leaving off a kid (or 2) won’t change the serviceability by that much, though.

    Thanks for your efforts, all! Much appreciated. Will definitely update this post if/when any updates from my end.

    Cheers!

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Ethan – I wasn’t suggesting you do this – just that the other broker/bank maybe.

    Request the client to get a copy of the servicing figures.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Ethan – I wasn’t suggesting you do this – just that the other broker/bank maybe.
    Request the client to get a copy of the servicing figures.

    I know 😂 I just meant that he can’t do it since it’s all with the same lender (so he can’t hide a loan from them).

    He got an email from the broker saying his borrowing power is $850k. Doubt the broker will provide a breakdown of how he got to this figure

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of brizziegirlbrizziegirl
    Participant
    @brizziegirl
    Join Date: 2009
    Post Count: 16

    I’m sorry to enter this conversation in a way that may demonstrate my ignorance and may be a silly question, however I interpreted your first post as saying changing all his loans to P&I to increase lending. How does a move to P&I improve lending? If you could explain that, it would be most appreciated because it’s somethings I’m not aware of :-) Thanks

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    I’m sorry to enter this conversation in a way that may demonstrate my ignorance and may be a silly question, however I interpreted your first post as saying changing all his loans to P&I to increase lending. How does a move to P&I improve lending? If you could explain that, it would be most appreciated because it’s somethings I’m not aware of :-) Thanks

    Yes it can improve serviceability – you would think the opposite though.

    These days most lenders assess payments for other financial institution loans as PI and ignore any IO period.

    So having a new IO loan for $100,000, 5 years IO and 25 years PI, for example, will result in the lender assessing the loan as 25 years PI.

    However if the loan was PI from the start it would be assessed at 30 years PI.

    Longer loan term means lower repayments which means better servicing.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Jess PeletierJess Peletier
    Participant
    @jaylou
    Join Date: 2009
    Post Count: 12

    I’m sorry to enter this conversation in a way that may demonstrate my ignorance and may be a silly question, however I interpreted your first post as saying changing all his loans to P&I to increase lending. How does a move to P&I improve lending? If you could explain that, it would be most appreciated because it’s somethings I’m not aware of :-) Thanks

    It depends on lender. With CBA, they will look at IO loans as P&I over 25 years, where they’ll look at P&I loans over their actual term.

    For other lenders it’s different, so don’t follow that advice unless it’s specific to your circumstances. There are other effects to having P&I on investment loans that can cost you a fortune in deductions over the long term so specific advice is very important.

    Jess Peletier | Seed Financial
    http://www.seedfinancial.com.au/
    Email Me | Phone Me

    Mortgage Broker - Perth and Australia wide

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    For other lenders it’s different, so don’t follow that advice unless it’s specific to your circumstances. There are other effects to having P&I on investment loans that can cost you a fortune in deductions over the long term so specific advice is very important.

    Completely agree. Unless the entire path ahead is clear, it may be prudent to do 2 year IO, thus having 28 years in the P&I calculations while still enjoying the IO term (it’s better than 25 years, not as good as 30 years). Definitely worth considering on case to case basis. The lending world is far more complex than it seems and a good broker is far more than just a middle wo/man. S/He’s a trusted finance advisor that is there for the client from day 1 onwards.

    And there are no silly questions 👍😎

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    There is a good chance, I guess, that he did some mistake somewhere and only when the borrower will be ready to buy is when he will discover that he can’t borrow that much but I’m just wondering if there could be any other explanation that I’ve missed…

    This ^^^^^ is the reason why I collect ALL the key metrics pre application so the advice given to clients is 100% accurate and they can proceed with confidence.

    Unless the entire path ahead is clear, it may be prudent to do 2 year IO, thus having 28 years in the P&I calculations while still enjoying the IO term (it’s better than 25 years, not as good as 30 years)

    There was a loophole with this at the CBA where you could go P&I for initial servicing and then call up post settlement and request a 5 year IO term. Not sure if this still exists as it seems to violate responsible lending?

    • This reply was modified 3 years ago by Profile photo of Colin Rice Colin Rice.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
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    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    There was a loophole with this at the CBA where you could go P&I for initial servicing and then call up post settlement and request a 5 year IO term.

    You can still covert P&I to IO via a switch form. You’ll need to explain the reason behind the IO switch.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    There is a good chance, I guess, that he did some mistake somewhere and only when the borrower will be ready to buy is when he will discover that he can’t borrow that much but I’m just wondering if there could be any other explanation that I’ve missed…

    This ^^^^^ is the reason why I collect ALL the key metrics pre application so the advice given to clients is 100% accurate and they can proceed with confidence.

    So true, which is why I also collect the relevant data prior to advising the borrowing power with different lenders.

    It is my understanding that so did the other guy.

    So odd…

    Cheers!

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

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