Hi all,
Hope this is not as stupid as it seems, but if I borrow for example, $500K, to buy a property, spend $50K to do it up over 3 months, then sell it straight away for a profit….I will then not have the loan any more.
So, the Bank is going to hit me with fees for paying it back too quickly.So, what type of loan(s) should I be asking about, which still give competitive rates, but can be paid off in a year?
thx,
JBHi JB
No it is not a stupid question at all and one develpers and investors ask regularly.
I guess you Bank is going to argue that there is no money in them lending to you over the short term (les than say 36 months) and therefore they are going to want to charge the relevant early repayment fees etc.A couple of altenatives would be:
1) Take out a development loan with no early repayment fees but accept you will get charged a higher interest rate be limited to a lower LVR and application costs.
2) Use your existing equity to establish a line of credit and purchase and undertake the renovation from the LOC. You will only pay for interest once the loan is drawn down.Regretfully your broker isnt going to want to help you with open arms as hs comission will be clawed back in full with most lenders if you pay out the loan within the first 12 months. I for one have many clients who i charge a fee for doing ther residential develpment loans whereby we place the application with lenders with low or no eary payment fees on the basis my commission is al lost when they pay the loan back.
Richard Taylor | Australia's leading private lender
Mmmm,
thx guys for the thoughts.
Appreciate the caution of going with the majors and also the idea of using LOC.I value the advice,
JB
Hi There, how about you include the exit fees as part of your strategy, in other words it does not matter how much the lender is going to charge you as long as you have contemplated this in your numbers, it is just another cost of doing business, simple as that. I do it all the time. Exit fees are no different than say paying fees to the selling agent, just another cost. I hope this makes sense.Happy Investing
Bank West's exit fees on some products are only $300 (approx).
There may also be the opportunity to keep the loan open and just switch securities – but this can be a lot of mucking around.
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
Terryw wrote:Bank West's exit fees on some products are only $300 (approx).There may also be the opportunity to keep the loan open and just switch securities – but this can be a lot of mucking around.
Great ideas. Thankyou very much.
Thx for the lead on Bankwest…Shall look in to them.
JBSome lenders have a scheme where you can transfer the loan to another property when you sell your development and are buying another same priced property as the loan security at the same time. So you are not closing the loan just changing the security the money is secured against.
This is know as substitution of security
see
http://www.nabcapital.com/downloads/public/22210_0.pdf page 10 and page 24 an example not a recommendation
http://www.ratebusters.com.au/products.asp has this facility as an example not as recommendation
http://www.emortgage.com.au/mortgage_products/LoanFeaturesBenefits.asp see third feature.. as an example not as recommendationduckster wrote:Some lenders have a scheme where you can transfer the loan to another property when you sell your development and are buying another same priced property as the loan security at the same time. So you are not closing the loan just changing the security the money is secured against.
This is know as substitution of security
see
http://www.nabcapital.com/downloads/public/22210_0.pdf page 10 and page 24 an example not a recommendation
http://www.ratebusters.com.au/products.asp has this facility as an example not as recommendation
http://www.emortgage.com.au/mortgage_products/LoanFeaturesBenefits.asp see third feature.. as an example not as recommendationThx, that sounds good. Shall give NAB a call….JB
Most of the big 4/5 do not have that big an exit fee on the loans – the ones that are, are usually the disocunted/honeymoon types. Most of the basic or standard ones usually have a flat exit fee, with a early payment fee with some. Really, in the schem of things it is nothing for what you have in mind – a grand would usually pull it up – painless for short term finance really I think. As mentioned though, deal direct with the lender – a broker will not get anything for this, therefore is not effective for them.
Nab and Anz come to mind. Call in and ask….it's free.
A lot of the banks are starting to introduce DEFs (deferred establishment fees) – especially if you take a discount. ANZ has a $700 DEF, eg., but they wil reimburse you if you take out another mortgage within 12months. But even $700 is not much when compared with some of the exit fees on the non bank lenders.
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
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