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Could I get a loan?

Discussion in 'Property Finance' started by wylie, 12th May, 2016.

  1. wylie

    wylie Moderator Staff Member

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    I couldn't get a mainstream bank to lend to me last year, and ended up with a second tier lender and a low doc loan with a high rate of 5.9% ($450K P&I). I'm thankful for the loan, but don't like the rate. The lender will not lower the rate, but has agreed to allow me to go IO. That helps cashflow, but I still don't like paying 5.9%.

    I'm owed $580k from family members and will likely get these funds within six to 12 months. I could pay out the loan with the money I'm owed, but I prefer to keep the loan (or one with a better rate).

    If I lodge some of this cash in a term deposit and offer it as additional security, would the $700k house plus the cash held as security be enough to allow a mainstream bank to lend to me.

    I have no income other than $520 per week rent from the security house.

    (Obviously this is simplified, and I have other income but nothing in "my" name and all security held with a mainstream bank, so I'm guessing this deal must stand on its own.)
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Unfortuantely cash in the bank doesn't demonstrate the ongoing capacity to repay, other than the interest that cash earns.

    If it's a commercial loan the criteria are more flexible and some lenders will view a deal as stand alone, but for residential they look at everything in your financials, so proposed rent on it's own is unlikely to be enough.
     
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  3. Kinnon Bell

    Kinnon Bell Finance Broker

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    IIRC, you've been working casually at a retail shop for a while now as well?
     
  4. wylie

    wylie Moderator Staff Member

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    Not any more. I was on about $20k income when I got the loan. Now no income.

    I might get bored and after our trip away, might try to pick up a 10 hour a week retail, but not sure yet.
     
  5. Kinnon Bell

    Kinnon Bell Finance Broker

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    Ah, damn. There goes that idea.

    Banks needs that regular income to prove serviceability of the loan even if you have cash sitting in an account.
     
  6. wylie

    wylie Moderator Staff Member

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    So they wouldn't look at the income being made on $580k sitting in a term deposit as income?

    With the same information, how much loan would the rent of $520 per week service?
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    They will take the income from the term deposit after it's been established and you can demonstrate it's ongoing. Often lenders want to see it on a tax return first, and obviously you can't use those funds as part of your contribution to a purchase.

    $520 doesn't get you very far. At least $400 / wk will be first assigned to your personal living expenses. The most you'd be able to borrow would be about $90k.
     
  8. tobe

    tobe Well-Known Member

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    some lenders can use a deeming rate for cash and other investments, but 2% of $580,000 isn't going to help a great deal. You can also try rams for their low doc. close to or under 5% variable and fixed rate options as well.
     
  9. wylie

    wylie Moderator Staff Member

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    That's crazy. Would they look at our other assets and realise (doh!) that I'm not relying on the rent for anything other than to go towards this particular loan?

    Might have to stick with the highway robbery whilst it is helpful to have the loan.
     
  10. wylie

    wylie Moderator Staff Member

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    Thanks. that would be better than 5.9% and to be honest, this lender is worse than the other one we are with. I thought they were hopeless, but this lender is worse.
     
  11. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Other assets don't put food on the table or pay the bills. Income does. If your other assets have income associated with them, then that can also be included in the assessment but so far you've only disclosed an income of $520 / wk.
     
  12. wylie

    wylie Moderator Staff Member

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    I left them out but now realise this lender must have made some allowance for our other assets putting the food on the table.

    So, I'm guessing I will wait until they get their act together and once I get the P&I changed to IO and try to get my risk fee back (not sure if I'll be successful in that regard but I'm going to push hard), then I'll look at this again.

    I want to keep a loan because with us both not working, having access to a loan plus the cash is better than not having access to a loan, but paying 5.9% is annoying.
     
  13. Marg4000

    Marg4000 Well-Known Member

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    Can you get an offset account attached to this loan? Put the cash in the offset to equal the loan then it is interest free while giving you options.
    Marg
     
  14. Blacky

    Blacky Well-Known Member

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    I would have thought that if you could demonstrate the other income as being 'yours' you could use if for serviceability calcs?
    It may require a guarantee from someone though.

    Blacky
     
  15. wylie

    wylie Moderator Staff Member

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    Unfortunately no. That was my first question. If I deposited the cash in an offset that would have given me a loan if needed without paying a high rate until we really need to use the offset funds.

    But your post has me thinking. I could pay down this loan (but leave a small debt to keep it open) and as long as I can draw it back up I could use the loan for other investment purposes.

    Thanks Marg. This could be something worth checking. I need to think it through some more and check if I can pay it down and then draw it up again.
     
    Marg4000 likes this.