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

Discussion in 'Property Finance' started by See Change, 11th Jan, 2017.

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  1. See Change

    See Change Timing Lord Premium Member

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    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
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Honesty is always the best policy
     
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    CBA SVR Investment loan IO with every day offset is decent replacement for the Viridian.

    Technically, the CBA loc has 30years IO, but doesnt have the primary reason one would use a LOC - that being the capacity to capitalise interest in a simple way a LOC should.

    If conversion to PI is a deemed risk due to Cashflow, then reduction of limit or demand for full repayment on demand is in general experience higher

    Seek some specialist advice here, especially if you have some concentration risk with business lending, commercial, SMSF etc with that same lender.

    Generically, this applies to almost all lenders, though there are specific product differences.

    I have seen lenders close off and lower LOC limits for borrowers even though they were within terms of the contract. I have seen similar with term loans with redraw, but less sowith major lenders.

    My basic view is that equtiy or your cash in an LOC is the banks money, cash held in an offset with an ADI tends to be your money, at least to the 250 guarantee,

    Am I paranoid - yes, unexpected lender/client experiences do that.

    ta
    rolf
     
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  4. House

    House Well-Known Member Premium Member

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    What reason did they give for doing so?
     
  5. See Change

    See Change Timing Lord Premium Member

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    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
     
  6. TroySeven

    TroySeven Member

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

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    LOCs can be and have been reduced or asked to be repaid usually where there is a increased perceived borrower risk............. to some extent this is within control of the borrower.

    What peops generally dont know is that LOCs ( like most commercial loans) can be varied without borrowers causing concerns, for example where the lender is suffering a liquidity issue, or they decide they have too much of one slice of security or lender profile.

    If one is "forced" to use LOC style lending ( and there are sometimes reasons why this need exists) try and use A grade lenders, lenders than can flick a LOC to IO SVR or fixed loan by tick and flick.


    ta
    rolf
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    In which case usually the higher investment rate will apply vs domestic/personal expenditure ie car PPOR holiday home etc.

    Some lenders discriminate on security, others on use of cash.

    ta
    rolf
     
  9. r3ckless

    r3ckless Well-Known Member

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    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
     
  10. Bozley

    Bozley Active Member

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    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)
     
  11. See Change

    See Change Timing Lord Premium Member

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

    Cliff
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I reckon all lenders are looking to fudge the edge

    ta

    rolf
     
  13. Swamp

    Swamp Member

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

    Gill Bates Member

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    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 .
     
  15. Blacky

    Blacky Well-Known Member

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    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
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Great analogy!
     
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  17. sash

    sash Well-Known Member

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    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?
     
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  18. Pamela Palmqvist

    Pamela Palmqvist Active Member

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    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.
     
  19. Blacky

    Blacky Well-Known Member

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    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
     
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  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.