Can anyone help me with the difference in the two?
I came across a mortgage originator that sources fund through the wholesale market and relend under their name.
Is it a niche market? I haven’t heard much about it through other nonbank such as Wizard, Aussie, RAMS etc. Maybe I am ignorant and cannot tell by their names alone.
Is there any trap one should look out for, or they are similarly structured in their products to nonbank lenders in terms of pricing, features, etc.
CT
Most of these are exposed to LMI regardless of the LVR. This may mean an extra premium and also means that your borrowing limit may be hit earlier – most finance rejections are due to LMi and you will have more loans under LMI.
Also check for early repayment penalties – they can be pretty high if refinanced/sold in the first 3-5 years.
They are a niche and can fill a need well. I prefer not to go that way unless choices are limited for some reason.
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks, Simon for the your reply.
I understand one is better off getting loan from conventional channel like the banks before looking at these nonbank lenders. There are reasons I look elsewhere. Also LMI is not charged regardless of LVR – are you referring to deferred LMI option?
The Mortgage Originator (MO) I spoke with has a range of different LVRs, with or without LMI depending on LVR limits, to suit needs.
I worked with a bank a while ago and was unhappy about the bank’s service then, and now. Constant change of relationship managers didn’t help. On top of that there were costly recurring mistakes they did not own up to better the already sour relationship. All I heard from them were fees, fees and fees via product enhancements and product pushing.
Bottom line is I would like good service and up to date knowledge of their own products to give us their best finance option to suit needs.
The MO has a lot of features at relatively similar price structure, if not better than, that of the banks; just to name the most common;
*Split loan facilities
*No fee for portability and top up when required
*Zero monthly ongoing fee
*Direct transactions allowed on loan account (direct debit or credit facilities)We do not have any problem with full doc finance application, but find mortgage broker can do better what banks can’t (eg. not cross or give to much collateral than required).
I would definitely look at refinancing current loan and take out an LOC, and IO loan for IP purchase in the coming months. Also, we may need a separate business loan for meeting capital expenditures some time later.
Can a split loan feature accommodate for them all for tax compliance (personal, business and investment use).
Simon, am I on the right track?
Much obliged.
CT
These days I recommend people avoid the smaller lenders such as the various originators where possible. This is because , as Simon mentioned, all of their loans are mortgage insured. Even if you the client do not pay the fee or know about it, they are still mortgage insured in the background.
Thats usually not a problem if you are buying one or two properties. But if you are planning on buying more down the track, then this will greatly effect you.
eg. say you get a $100,000 loan with XX on a full doc basis. You then have reached your borrowing capacity due to low income. If you have plenty of equity and wish to go for a No Doc with YY, you may not be able to get approval. XX may use the same LMI as YY. If teh LMI company knows you cannot afford the repayments based on the income you declared initially, they are not going to pass you, and your loan will be rejected.
Terryw
Discover Home Loans
Parramatta
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Thank you Terry and Simon for your replies; I guess I must heed your warnings and play it safe as you guys have seen the bad things happened to the uninitiated more so than we do.
Hmmm, it’s all talk for now as I’m waiting for settlement of my other property before doing anything. All the more reason to do my due diligence. [blush2]
CT
I would have to disagree with both Terry and Simon.
Banks
Do use mortgage insurers when they need to.The banks will normally self insure, but under capital adequacy requirements they have to set aside a certain amount of capital. If they are short cash at any stage they quite often grab a whole lot of mortgages and take them to the insurer. Once insured they no longer carry the risk, and therefore they can free up capital.
I had a client where that exact thing happened.
Need confirmation – just ask the bank which insurer they use, and normally they will use one or the other. It is not a coincidence, that their borrowing limits are similar to the Insurers.
And banks by far have the more insidious clauses in their loan documentation.
Non Banks
1) quite often have AAA rating, as they are only dealing in mortgages. most of our banks are only AA rated.
2) The mortgages are normally held in trust against the loans, with the two big trustee companies, Perpetual and Permanent. (Unless GE who manage their own)
3) The rates are normally very competitive.Mortagage Originators
All they really do is pick different products from the non banks and rebrand them to their own name.Wizard is actually owned by GE, and GE also offer a whitelabel (rebranding) product to many.
At the end of the day it is horses for courses. Which fits within the strategy for the property you are buying. That may be a major bank.
Originally posted by ctaing:I would definitely look at refinancing current loan and take out an LOC, and IO loan for IP purchase in the coming months. Also, we may need a separate business loan for meeting capital expenditures some time later.
Can a split loan feature accommodate for them all for tax compliance (personal, business and investment use).
Be careful here when setting it up. You can use a split for whatever purpose you want – basically you are lending to yourself or your business.
a) I like Simons method of using an offset instead of a LOC, if you ever think you may move out and turn the property into an investment. But that may be a problem if some of the splits are for other purposes.
b) If you deposit funds from a split into a personal LOC, that may destroy the ability to claim the interest.
Talk to a good accountant.
Regards
JohnInspired Finance
(02) 9944 7776Geez, I don’t know what I don’t know… Thanks for clarifying that JohnSmith.
I really appreciate you pointing out the split loan trap on claiming interest later. It is definitely something the broker in contact was unaware of the issue here.
Yes, I do recall reading from posts in this forum the Offset is the way to go. But I’m not clear on what make the Offset different from a Redraw.
* Is it available on standard loan product or is it an extra feature in premium products?
* And is the method of interest calculation of the Offset similar to that of Repayment Redraw facility?On a separate issue to save stamp duty on loan already paid – Do we face a problem with claiming for negative gearing when we pay off PPOR loan and use it as an Investment loan?
That original Wealth Package Home Loan still has over $350K left (with a sizeable Special Redraw payment) to run the full term of 30 years (from the original date of settlement 3.5 years ago). It seems more tricky when the loan was taken out in joint names – my spouse has higher salary while I do not have a regular income except from variable trust distributions.
In times of increasingly more innovative but complex loan application, I’m going to be indebted for all input generated here before we can confidently venture out to ask the right questions of the lender(s). [happy3]
As with all replies, I understand the comments are to be followed by advice whenever necessary. [thumbsupanim]
CT
Originally posted by ctaing:* Is it available on standard loan product or is it an extra feature in premium products?
Normally the more functionality the more you pay – but there are some reasonable rates out the for Offset accounts. Close to or just more expensive that a simple loan with redraw
* And is the method of interest calculation of the Offset similar to that of Repayment Redraw facility?100% offset – pretty well means what it says nowadays (Although in the past…..) So yes say as if you made a repayment with redraw.
On a separate issue to save stamp duty on loan already paid – Do we face a problem with claiming for negative gearing when we pay off PPOR loan and use it as an Investment loan?Not exactly sure what you meant here, but..
If you pay down a PPOR, and then redraw an amount to buy an investment loan, it would be better that the redraw was a separate split, to differentiate it from all – there can be no question then.
just make sure that the money from that split does not pass through you personal accounts. It may be worth having a separate bank account for business purpose only. A good accountant could advise you.
Regards
JohnInspired Finance
(02) 9944 7776Hi all,
Thanks John for taking care in replying to my late posts. I’m grateful for the generosity demonstrated by all.
John, I understand the business loan should ideally be independent from personal or investment purpose to follow strict tax compliance guideline.
My last question relates to the cost saving on the loan stamp duty (originally paid when it was taken out, eg 400K loan would mean a stamp duty of $4780).
Scenario
Own home outright (payout 400K loan in full)
Buy new IP at 300K at 80% LVR (drawdown to coincide PPOR payout)
Ask bank for release of title and substitute new IP title
Meet deposit and other upfront costs on the purchase out of savings (conservative)For simplicity, assuming an Offset feature can be set up easily on the original loan, and the loan amount can be negotiated to suit (reduced loan amount to say, 240K, and get rid of redraw).
If that PPOR loan was to be paid off to nil and coinciding with a draw down of the loan for IP; would that complicate the intent of negative gearing for tax (as it was originally taken out for PPOR)?
Something is telling me it’s not right… I need to refinance to structure it properly etc..
Please bear with my line of questions; stupid as they may sound.
Can anyone offer some pointer? – I hope I do myself justice by thinking aloud here. [wacko]CT
CT
If you borrow money, deductibility will depend on what the money is used for, not what the security is, nor what the original loan was for. Not sure exactly what you are asking, but if the original loan were paid off, then you would probably have to pay stamp duty again on the new loan. But if the original loan was not discharged, then you may not have stamp duty again. This shouldn’t affect deductibility, because you are borrowing again. ATO considers withdrawing money to be borrowings.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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
Originally posted by JohnSmith:I would have to disagree with both Terry and Simon.
Banks
Do use mortgage insurers when they need to.The banks will normally self insure, but under capital adequacy requirements they have to set aside a certain amount of capital. If they are short cash at any stage they quite often grab a whole lot of mortgages and take them to the insurer. Once insured they no longer carry the risk, and therefore they can free up capital.
I had a client where that exact thing happened.
Regards
JohnInspired Finance
(02) 9944 7776Hi John
Now that you mention it, it does ring a bell. I guess this could stuff up one’s borrowing strategy. But I wonder what sort of information would get passed to the mortgage insurer. But it could still effect the borrowers borrowing capacity with that mortgage insurer down the track.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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
Thank you all for contributing your expertise in this thread.
Now, I’m almost tempted to join your line of work. Great job satisfaction for helping people achieving their goals; your integrity will be rewarded beyond the commissions (and trails)….. See, I’m learning.[laughing]
Thanks Terry, I think you have answered my concerns on interest deductability on reborrowing using exisitng home loan. Time I check with my bank. Let’s hope there’s a relationship manager that knows their loan products inside out. [mellow]
Cheers
CTOriginally posted by ctaing:Thank you all for contributing your expertise in this thread.
Now, I’m almost tempted to join your line of work. Great job satisfaction for helping people achieving their goals; your integrity will be rewarded beyond the commissions (and trails)….. See, I’m learning.[laughing]
Thanks Terry, I think you have answered my concerns on interest deductability on reborrowing using exisitng home loan. Time I check with my bank. Let’s hope there’s a relationship manager that knows their loan products inside out. [mellow]
Cheers
CTWhy don’t you check with Terry? I bet he knows more about the range of loans available to you than any single Banker.
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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