Any lender allowing to "redraw" to buy shares, with no servicing check?

Post APRA, having moved into one IP and temporarily on a single income, bank servicing departments in the new world would cry if they plugged in our numbers.
Switched to P&I and fixed to get better rates and paid down about 40K principal on a few loans over the last year. Have a couple of maxed out investment LOCs on top of that.
Have a decent chunk of shares as a safety net, plus cash to sail through the income lull.
Under these circumstances I obviously can't buy more property because a full assessment would prevent any credit extension.
However the prospect of sitting on the sidelines for the next couple of years and doing what a good citizen does - reducing principal with proceeds from a 9to5 job - is a bit grim for my investor heart. Like a good farmer, I'd rather have the puppies (40 or 80 or 100K of them) graze the mountain over being locked in a cage... the poor things!

Curious if any of the brokers here have come accross a lender that would be open to "turning the clock back 12 months" without asking many (servicing) questions?

For example, the lender could think like this: "You have a spotless payment history. Paid down 40K from what we gave you last year. Now you want to participate more in the market by buying more dividend producing shares with 6-7% yield - which will likely fully offset the cost of the finance interest. We can't lend you more than last time, but we can turn the clock back and allow you to redraw. We're moving 40K of debt from your LOC to your main loan to top it back up. You now have 40K available in your LOC to buy the income producing shares."

If such redraw process was repeated every year, for the borrower it would effectively be like an I/O loan arrangement, but the bank would see a periodic demonstration from the borrower of being able to pay P&I - i.e. less risk for a bank compared to a standard 5 or 10 year I/O deal.

Am I dreaming? Any articles in the APRA Guidelines that would kill such idea? The main discussion is about whether a redraw is new credit or not...

 

I understand the I/O setup with AMP Master, but my question is more about the new P&I world. In some ways I see the AMP Master Limit directly in conflict/incompatible with official P&I repayments.

Not an AMP client, but with the push to P&I for regulatory and cost reasons, it's hard to imagine that AMP would let you have a Master Limit, go P&I on the main loan and allow to refi the principal portion every month from an effectively "endless" sidecar LOC?
They'd a) be losing interest revenue by letting you have the P&I lower rates while not really paying down the debt, and b) might be opening themselves up to scrutiny that they're actually not complying with the <30% I/O policy. It's a different story if this leveling was happening once a month vs. say once a year like I suggested (or it was done across two unaware lenders)

Thanks for the suggestion to approach the lender directly, even for the big 4. Any tips on how to get into big 4 Private departments? What kind of asset / lending levels are we talking about? Are ANZ Mobile Lenders more on the broker or retail side of things from your experience? I always try to avoid the local branches...

With the non-APRA lenders like Liberty or Pepper it's a catch 22. I want to keep the big, P&I, redraw-inspiring loans with the majors for cost reasons, so that's where the redrawable void is accumulating. Moving a smaller debt/property over to a lender of last resort could achieve a one-off "redraw", untapped-equity-permitting, to buy shares, but the higher ongoing costs and inability to repeat yearly (due to not paying down debt there at all if I/O, or at much lower levels if P&I but smaller loan) would probably kill the idea. Plus in my case the move now might not service even in their calculator.

Basically this is about feeding the P&I wolf at a major bank, but having the redraw cake - with no assessment - too. And asking if from people's experience there is or are specific banks whose departments might be more willing to entertain such ideas than others [but of course all done correctly under the reigning ideology that we all applaud and support!].

 

You've paid down your loan by $40k. You want to redraw that $40k and buy some shares...

... that's no problem. Most lenders will allow you to redraw previous extra payments with few questions asked.

It also appears you want to split that portion of the loan into a separate account. Also no problem with most lenders.

Where you run into problems is if you want to increase the current limits of an exist loans, or extend an interest only period. That is considered 'credit critical' and requires assessment by most lenders. Redrawing funds from a loan and splitting a loan are not considered credit critical, as long as that's all you're doing.

 

Peter, the catch is that I wouldn't be trying to redraw "extra payments". It's redrawing the past "minimum repayments".
Since for example ANZ told me that an IO extension now needs a full app, I wonder whether such "redraw" from a fixed P&I loan into a new facility would be possible. It would be a nice loophole as effectively the bank would be handing you the principal back to play with again, making the original loan "IO" of sorts.

 

Yes. Except I need to achieve it with existing lenders and "redrawing" (shifting original credit limits) from fixed, P&I loans. Can't refi to AMP due to servicing and due to having 2 more years of fix on the loans.
In my internet banking the "available funds (to redraw)" on these P&I loans shows up as Nil (most likely reason is due to them being fixed, but could be also due to only having ever paid minimum principal repayments).

And the central question is: does the curve of the limit decrease track, dollar for dollar, the amount of "minimum principal repayments paid as forced by P&I", or is the function unrelated to that, e.g. starting 3 years from setup and decreasing for example by a fixed percentage of outstanding debt per year?

Sounds like I'd qualify to be in the Private bucket, thanks.

 

@Peter_Tersteeg you mentioned with most lenders it’s easy enough to ask the bank to create a new loan split from funds available in redraw?
Are you able to eleborate on that with regards to how simple the process is?

For example say I have a 800k loan with 200k in redraw. Can I simply contact the lender and ask them to create me say 4 new 50k splits and they could do this without an application so long as repayment type and term remained the same?
I know technically this has made no difference to your servicing or repayments but I also know banks like to play big brother.

 

The loan is amortising, with the balance reducing. If you have paid extra you could have redraw available on the extra payments, but if you have just been paying PI then you would not have extra as the reduced $40k is just a natural reduction in the loan balance. To get more you would need to apply to borrow more.

 

With the last purchase that's how I set it up - term loan at 57% LVR and a LOC at 3% LVR, for a total LVR exposure at 60%. Both were arguably originating from the same limit - we/Peter just told the bank to not draw down the entire approved amount into a term loan, but to split it between a main term loan and a LOC limit for renovation/investments.

It's probably not about a style of product per se, but, as you pointed out, about speaking to the right department that has the ability to elevate the conversations and business out of the mainstream APRA territory to a more sophisticated/independent place where LVRs are the main factor for assessment.

You didn't misunderstand initially Rolf

 

What you're trying to do isn't redrawing as be definition redraw means you will have need to make more the the minimum payment to be able to redraw surplus funds from a loan account.

As a general concept, it appears you want to perform an equity release. The rest is just structuring.

This requires you to demonstrate serviceability for existing loans plus the additional funds from the equity release. You've indicated that you don't have the servicing capacity to demonstrate this and you're asking if there's lenders that will apply last years policy, today.

Sorry, the official line is that this isn't going to happen. Today, lenders apply today's policy. I am aware that it is possible to get individuals to do some dodgy things to improve your serviceability, but this is called fraud and is one of the things that has led to a royal commission (which is one reason it's getting so hard to borrow money today).

It is possible that there's lenders you haven't considered may have policies better suited to your circumstances and have servicing models. You could shop around some more or ask a broker to help.

The other solution which nobody ever really wants to hear is to actual save money, make the extra repayments, so you do have the money available for the future. One of the best ways to beat servicing restrictions is to actually pay off debt.