My normal broker is currently away and I wanting some advice about how to proceed to financing a third investment property.
My current holdings:
I have two units in QLD, bought 2years ago, 230 000 each. They have been financed IO, fixed rate 7.29 which finishes in january. Both units were purchased without mortgage insurance as they are secured against a family members property. These properties are now worth about 320 000 each. By my calculation giving me about 180 000 equity to consider another purchase.Things I want to buy:
I have two properties I have an eye on. (1) old post war in average condition on great block and very tempting price of 460 000. It is in a good suburb where new homes on similar blocks are selling 750 000 to 900 000. There would be sufficient rent for the moment to make the holding cost about $5000 per year until I was ready to build, or sell for capital gain. (2) 18month old home in same suburb worth 700 000, good depreciation, good rent, holding cost 10000 per year, awaiting capital gain on market rebound.What to do:
If I do nothing the bank will change the existing loans to IAP at a standard variable rate no discount. To negotiate any discount will incur 1000 per property, to change to IO for further period will incur further 1000 fee. Any change I negotiate will require me not to make any changes to the loans or incur a further fee.I feel the bank is not offering the best possible deal. If I do anything it will cost me, and will limit my flexibilty to change around the loans to access equity and by a third property. How do I avoid the excessive fees? How do I negotiate a better rate? How do I avoid locking in loans that will be difficult to change?
As a professional with excellent job security (health care) and near exponential growth in salary over the next 3 years I think the bank should be bending over backwards?
Can you set up a line of credit with the existing bank based on the increased equity.
Then you can use this line of credit loan for the deposit on the next investment loan which doesn't have to be with the same bank.
See if you can get a professional package with the existing bank. You pay one fee a year but benefits go with the package.If you want bank to bend over for you tell them you are considering a possible refinance of the existing loans with another bank.
The bank has a division that handles customer retention as a loss of your loan is a loss of income to the bank.Whilst i normal agree with my learned colleague i must say that if the current security for these loans is another family members property i think I would start by doing a security switch to the properties themselves.
If you lender is wanting to charge $1000 per property and you feel that they are not as competitive as you would like I would be refinancing and negotiating a better deal elsewhere.
Most lenders will charge an early repayment or deferred establishment fee however if the interest rate saving or deal flexibility by refinancing gets you what you want then surely it has to be worth it.
This day an age competition is still with us and lenders are still competiting for business (Just)
To me the most important issue sounds like the structure and set up of the loan to enable you to move forward.
Most lenders and mortgage brokers (unfortunately) are open throughout the Xmas due to volumes so ask around to see if you can do better.
Richard Taylor | Australia's leading private lender
Thanks Richard and Duckster,
Firstly – I take your point about releasing security, this was originally made as a move to avoid mortgage insurance and as a first degree relative I was able to secure '20%' of the loan against their property to do this. I have had sufficient gains so that I can release this. It worries me that I am 'risking' their property when I don't need to.
Secondly – I had though about a line of credit. I had considered a portfolio loan with St G (ie LOC). I had assumed that this would mean that ALL loans would be with St G and I don't want to have everything with one institution. Am I correct in thinking that I could (1) value the properties to establish amount of equity (2) apply for LOC to either 80% or 90% (+LMI) (3) knowing the amoutn I have available to access on the LOC – I can go to the next bank and get a loan secured against the LOC?? (ie equity).
I am itching to buy but I really don't want to do anything without knowing what structure the loans will take.
Yes in a nutshell you have it.
I assume your current loans are with SGB who are known for charging at every turn.
Their Professional package also makes it a condition of the loan that all loans are cross collateralises so looking elsewhere for a standalone IP property is not a bad idea.
There are some good deals around at the moment so you should be able to find something to suit.
Richard Taylor | Australia's leading private lender
I am just wondering now what are the important features I should look for in a line of credit loan? Some that I can think of are:
1. capacity to split into sub-accounts and potentially fix those rates
2. discount on standard variable rate if possible
3. minimal fees
4. good LVR with or without LMI to maximise equity I can access
4. interest only payments
5. capacity to easily access equity for deposit of third property …. is this redraw?Would mortgage offset be important. I plan on keeping personal finances v property investment finances as separate as possible.
James
James
Probably covered a lot of them in the above post.
You would want to think about restructuring the loans from the start to keep them nice and clean and if so i would definately use an offset account. This can be linked to the personal debt if you have any but if not your IP loan.
Not many institutions will offer a fixed rate on the LOC but nothing to stop you switching the loan to fixed once you have drawn it down in full. Many lenders are also wanting to control the direction of the funds with Lines of Credit these days so flexibility is the key.
Richard Taylor | Australia's leading private lender
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