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Do any lenders/calculators use interest only numbers instead of P & I

Discussion in 'Property Finance' started by Moist, 24th Jun, 2015.

  1. Moist

    Moist Well-Known Member

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    When calculating serviceabilty, are there any lenders that use interest only instead of P and I?

    I thought I recall NAB using something in their calculators that allow greater borrowing?
     
  2. Redom

    Redom Mortgage Broker Business Member

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    Hi there,

    Yes I/O does assist your borrowing capacity with some lenders.

    Some lenders work of your contracted repayment amounts. I/O contracted repayments are lower hence your assessed expenses are lower. This then increases your borrowing power with some lenders.

    Its a big reason why brokers generally suggest i/o for those looking to accumulate investment portfolios.

    That said some lenders work of P/I repayments regardless.

    Thanks,
    Redom
     
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hi there

    I assume you're talking about the debt you hold with other banks?

    If so, then yep - some will still take IO. They just aren't the majors or the popular second tier guys.

    Last month there were half a dozen commonly known banks calculating other banks debt at IO - they've all either made the shift to calculating it at P&I and a higher rate or applying a loading (Nab group for instance will apply a further 28% loading to the repayments you have with other banks).

    Cheers

    Jamie
     
  4. Moist

    Moist Well-Known Member

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    Yes thanks Redom, I understand this. I was more after if someone could actually tell me the lenders that work off the client's existing contracted repayments rather than applying a P and I scenrio, as I have multiple IPs but want to expand further.
     
  5. Moist

    Moist Well-Known Member

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    Perhaps I should make it a bit clearer. I need to find a lender that will lend 90% w/o LMI under a medico package for myself under my trust entity that will look at my loans on their current situations ie: IO and effectively allow me to borrow more. It seems I have maxed out with my current lender ANZ
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    The lenders that use actuals are shrinking fast, especially in the 90 LVR range. Firstmac will go to 90% inclusive of LMI and from memory I think they'll lend to trusts.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    If you're maxed out with ANZ, there are plenty of lenders who will likely still lend significantly more money. ANZ aren't exactly known as a generous lender for servicing purposes, it would be easier to list those who lend less.

    Pretty much all of the other major lenders will likely meet the requirements you've outlined. However I'd suggest that rather than pick one at random, you engage a broker and develop a longer term finance strategy. There's a lot more to it than simply assuming actual repayments of existing debts.
     
  8. mugen

    mugen Member

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    All these recent changes, do they apply for both PPOR and IP loans?

    A friend was thinking they only apply for IP loans to clamp down on investors, not owner-occupied buyers.

    I was under impression the changes applies for both. The only difference between PPOR and IP loans is that discounts are not favourable for IP loans as opposed to PPOR loans. Am I wrong on this?
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The changes are squarely targeted at the investment market, but they certainly do have implications for owner occupied lending. For example the servicing changes are implemented as general policy across all loan applications, there's no exceptions if you're buying a PPOR.

    If you're buying a PPOR and you already own IPs, you'll be heavily affected. If you don't own any other property, there are some subtle consequences, but it would be fairly extreme circumstances for this for this to actually make a difference.

    Quite a few brokers have reported that the changes haven't had any significant affect on their business. The brokers who deal predominately in the investment space have reported that the changes have been quite significant.
     
  10. Redom

    Redom Mortgage Broker Business Member

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    The majority of changes can be broken down into two categories:

    1. Incentives - the pricing (rate) for investors has increased relative to PPORs. In the main this hasn't really affected PPOR holders, although at the margins the changes in incentives may sway people to different lender choice. The one difference is that a lot of banks are incentivising PPOR holders to switch over to P/I.

    2. Serviceability calculators - while the major changes to servicing calculators are likely to hit investors more, it is applied to PPOR holders. As Peter mentioned, its likely to hit those who hold investment debt but looking to purchase a PPOR more so than those without the investment debt.

    Cheers,
    Redom
     
  11. sumterrence

    sumterrence Well-Known Member

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    I think St George and Westpac still doing 90% without LMI for professionals.
     
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Just to further clarify this with a practical example...

    ANZ has increased their servicing margin from 2.00% to 2.25%. This type of policy is applied to all new and existing lending, regardless of purpose of the loan. It effects owner occupiers and investors in exactly the same way even if they're only purchasing their very first property.

    In terms of the overall servicing calculator it's not a huge change, thus the change in an individual's borrowing capacity isn't going to be much if it is their first property, peoples margins usually aren't that tight. However if that person already has a significant amount of existing debt, that change is magnified and it may make the difference between success and failure of a finance application.

    Most lenders have made changes which have similar effects on peoples affordability. Every borrower is affected by these changes, but it's the investors with a lot of debt that are going to notice it the most.
     
  13. kr11

    kr11 Well-Known Member

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    hi
    If u are maxed out with anz, why don't u ask one of the many great brokers on this forum to assess your serviceability with other banks.
    cba, westpac,macquarie,nab(thru medfin) and boq(thru boq specialist) all do 90% no lmi medico loans
    If u are able to release equity by refinancing to 90% on existing ip's, with no lmi 90% lenders mentioned above with current ip's, then u could use that and use other institutions at 80% lvr that treat actual repayments

    I have spoke to a medfin rep and they treat ofi at 28%loading, consistent with nab policy, still much better than anz

    I have also spoken to boq specialist and the good thing is they treat ofi at actuals.
    It is more of a case by case assessment rather than just raw figures put into their serviceability calculators
    I had it confirmed twice

    cba and westpac, other brokers have mentioned their buffers, still better than anz

    You can use your broker to access medfin, but boq specialist is not available thru brokers

    The problem with both medfin and boq is that they will try to no end to x-collateralise all your properties, as one of the brokers Peter fantastically described the problems of x coll, and this is the big problem, as well as concentration risk of having many ups with them
    They may even refuse a loan if u don't cross coll
    Hence u would be sacrificing future growth, by being limited with cash outs and further purchasing of ips
    later on with other lenders

    so,i think if u hook up with a good broker and see if u can get loans with cba,west pac,nab(medfin) in that order possibly, and then may do 1 thru boq specialist, and then onto the actual payment lenders(however they will only be at 80% lvr, otherwise there will be lmi involved), that might be a reasonable plan

    Hope this helps
     
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  14. kr11

    kr11 Well-Known Member

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    i didn't include st george
    they do 90% no lmi but their servicing calculators are not much different to anz
     
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  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    more so now with recent STG changes.

    Ta

    rolf