Choosing a bank or Wholesale fund

Hi Richard and Terry, I'll squeeze a response to both of you in one to make it easier. I've cut parts of your responses into and put my responses against these.

If there is LMI involved then the LMI company will dictate the requirements you will have to meet. So if in the future you apply for a increase and your postcode is no longer allowed with then you won't be able to increase the loan. Or your employment may change casual and they won't allow it etc etc.

>> ok I see your point. but wouldn't this be a problem with a bank as well?

Also there is only 2 major LMI companies, so giving your detail to one will mean if you go to finance at another lender, or a bank and borrow more than 80%, than that lender's LMI people may know your info already. This is not good if you have already been rejected (or if you have told them different info!).

>> I don't see this as a problem for me.

Also – ask them their fixed rates. They will probably be much higher than a bank. So if you suddenly decide rates are going up and you want to fix……..

>> they currently offer, 3 year fixed for 6.99%. this seems competitive.

What happens if they were to sell their loans to another lender? Sudden increases?
Customer service after a few years?

>> Aren't I locked into the variable rate, so my rate will only increase if they increase the variable rate on everyone, including the new clients. this would mean that they loose their market edge of a low variable rate and not win more customers. what I'm saying is, isn't it in their best interest to keep it as low as possible?

Lack of offset is a real problem too. Without one you will be paying down loans which may not be good for tax later on.

>> I thought that having money in an offset against an interest only investment loan then means that it will start to pay the principle off and therefore not be tax effective. Because I can have unlimited deposits and redraws (with no minimum) I plan on putting any excess 'offset' money into my personal home loan and leave the investment loans as is (just pay them fortnightly/monthly) from the home loan account.

Problem is you cant go the 4 or 5th mortgage insurer once you have max out with another because there are only 2 of them out there. Unlike lenders where you can switch around and try another lender.

>>

As Terry mentioned it is horses for courses but i wouldnt touch a lender like them. 
Guess i can think of all the securitised players who are no longer with us. Promised the world yet didnt last the distance.

Reminds me of a few horses i have had a quid or two on.

If they were that good why dont they have a bigger market share.

>> I guess its like Steve says "success comes from doing things different from others". I've been asking lots of other people over the last few weeks about who they use and why. Like you said many are with a big bank, but the only feasible asnwer is that their loan broker directed that way or for the security of a big bank.

>> my belief is that if they haven't fallen yet then they are most likely a stayer. We;ve seen that anyone is fallible, even some of the biggest banks in the world that were 'too big to fail" have fallen. Also, excuse me here, brokers have a vested interest in going with the places that will give them the best cut. After all this is their livelihood, this is how you feed your kids (and buy the 4WD's . I may be proved wrong in the coming years but right now the risk is 1 months repayments, and if they are what they advertise they are then I'll be happy.

Banks only insure loans above 80% LVR. Below this and you are free of LMI restrictions.

>>so non banks will pay LMI regardless? how do they charge me for it? is this factored into the interest rate or are they going to hit me with it some other way?

If you think your rates will just go up in line with the RBA just ask Macquarie Mortgages clients how they feel about this!

>> yes I know when the credit markets froze last year and the banks were dropping rates to compensate some lenders didn't pass on this. but don't you think credit markets are less volitle now and therfore this risk is lower?

I wouldn't think security is a reason to go to big banks, but the other reasons I listed are.

>> can you refresh me again? LMI, and lack of offset?

You also misunderstand offset accounts. The balance or wouldn't change on a IO loan with an offset, just the monthly repayments would be reduced.

>> OK i'm with you. I had a loan with set monthly repayments so the offset paid down the principle. If i've got extra money I want this to work against my home loan not the investment though.

If you don't intend to invest, never intend to move or increase your loans, then you may be right with the smaller non-bank funder – subject to the problems above.

>> I do intend to invest and increase and change the loan. The features like free valuations, free increasing the loan, portability, will allow me todo this. My experience with banks so far is that I've had to pay when these things have had to happen in the past. The package that my broker offered now these are free too, but you pay a $300 a year fee though.

>> I will be saving about $1700 a year with the non-bank, I think that worth it not having the account bells and whistles that I'm not going to use.

I guess there doesn't seem like a good reason not too, and on top of all the other reasons, they can have the loan set up within a week as opposed to 3-4 with the big bank. This is very good as settlement is once finace is sorted.

Thanks for your comments guys, I guess if a loan broker is suggesting going with a non bank that it must be a good idea