CBA LOC , asked to nominate reason as personal or investing ?!

We have a CBA LOC and have been asked by the bank to nominate whether this is used for personal or investing purposes . Personally I think my investing is pretty personal ....

They are about to bring in different rates depending on your purpose . Upto now I've kept the facility as an LOC due to a perception on my behalf that if we turn it into a standard loan ( which we can ) that it will have an interest only period , but has the potential to be changed by the bank to P&I . We already have a few loans with that potential , so as a risk management reason I was keeping it as an LOC even though the current rate is higher ( but more than manageable ) .

Any thoughts ?

Cliff

 

Honesty is always the best policy

 

What reason did they give for doing so?

 

Hi rolf

All money was used as a personal reason , personal investing ...

No complications of purpose outside different entities being the purchase entities .

Not interested in capitalising interest .

Chances of this being an issue are incredibly unlikely . The facility is just around less than 50 % of the value of the property .

When you've seen facilities closed or decreased , have these been in situations when people were sailing close to the wind , change of circumstances etc or were they totally out of the blue ?

Cliff

 

The only reason I can see they decrease LOC limits unexpectedly is when they complete an annual review (where applicable) forced by credit/risk.

 

depends. i would be asking... can my income service said LOC as if it was personal?

pros - obtain cheaper rate
cons - not borrow ideal amount

if saying its for investment:
pros - can borrow more than personal
cons - higher rate

 

We got the same letter today Cliff. I'd say its to comply with APRA regulations etc. It would mean another 1% for us at their currently advertised Investment - Residential Equity Rate (this replaces the Viridian LOC)

 

We do have a solution . We can use our westpac LOC instead , but will we get a letter from them ...

Cliff

 

Got one today also, just as I'm about to draw down fully..

 

RE "re cba LOC question asked is it personal or investing "

I suspect it could/would determine what happens in a DEFAULT.

IF its investing as opposed to owner occupied investing their is a different process for dealing with default. ie if i is owner ocupied real estate, the process is more lenient. if it is investor investion they can sell you up quicker and easier. I believe this in consumer credit code? I beleive there if it is owner occupied investing , you can ask for 90 day repayyment holiday, but you have toask for it, the bank is not obliged to tell you , that you can do this .

 

Lots of reasons visable or not, that a bank will reduce an unused credit limit.
Situations I have wittnessed...
The bank determines their exposure to a post code is a risk, so they withdraw from the area.
They determine that there exposure to a 'segment' is a risk to them, so they withdraw from it.
They determine that an area has seen an decrease in value, and take a more conservative approach.
You apply for additional credit, or a change, or even a phone call enquiry and someone reviews the file.
When the bank starts to come close to their provision levels, and pull back unused limits.

An overdraft is like and umbrella the bank gives you... and then takes it off you when it starts to rain.

I worked in banking during the GFC, and there was a team set up to review unused limits, with the intent to cut them as far back as possible. In my view their short term 'risk aversion' removes the risk and makes the risk an actual event.
In my view, often, if the bank released additional funds to allow people/companies to survive a short term dip - there would be less people going under.

Blacky

 

Great analogy!

 

Aaahh....yes...the ole CBA trick......LOC's are dangerous at best.......they are treated very different to an Offset which all of mine are......

If you say investing purposes...your friends at the CBA could deem this as risks and close it off if they deem it risky...they will also definitely go down the path of P&I......say if is personal..and you can't use the funds for tax purposes.

Did I tell you CBA are one of my least favorite banks?

 

Ideally, you'd want an investment loan I/O 5 years, much safer and secure. Once the 5 year period is up you'd extend or renegotiate.

If you stick with LOC why not say it's for personal reasons and obtain the better rate, you can still do I/O and if you use it for investment, your accountant can still make it tax deductible.

 

Macquarie are the only ones Im aware of who are more ruthless.
They have the patience of a cat on a hot tin roof.

Its important to understand the internal workings of the bank.
When a loan starts to look like it is going bad, its bad for the account manager. Its a lot of work, a lot of reporting, and a lot of stress. As such the manager is often keen to see the file off their desk.

They write up a report, and put the file to the "stressed file team" using the lowest possible estimate loss they can - as it hits their profit for that month.
The stressed files team job is to assess if the file can be recovered and returned to the manager, or if it is best to cut and run. They will usually 'asses' the file and place as high of a 'potential' loss on it as possible.
Then go about getting shot of it asap. Either recover and return, get the client to refinance, or sell what ever security they can and recover as much as possible as quick as possible.
Given they have put such a huge potential loss on file - when they get shot of it, and the loss is much smaller than the estimate - they look great as they have 'saved' the bank so much compared to the 'assessed loss'.

Everybody wins... oh.... except for the client.

Blacky

 

This is not the case. It is the use of the funds that determines deductibility not whether a loan is classed by the banks as investment or personal.