Does having large cash improve serviceability?

Discussion in 'Loans & Mortgage Brokers' started by RoadRunner, 30th Mar, 2020.

Join Australia's most dynamic and respected property investment community
  1. RoadRunner

    RoadRunner Well-Known Member

    Joined:
    3rd Dec, 2018
    Posts:
    76
    Location:
    sydney
    Let's say I have Home loan of $500k and same amount of cash in offset account effectively paying $0 interest.

    I also have $400k investment mortgage which I would like refinance.

    Will there be any impact on serviceability if I didn't have any money in offset account?
     
  2. David R Sutantyo

    David R Sutantyo Well-Known Member

    Joined:
    2nd Jan, 2020
    Posts:
    65
    Location:
    Sydney
    Unfortunately not. Serviceability is mostly based on the income you generate minus your expenditures. With your current liabilities, doesn't matter if you're paying 0 interest at the moment or if your credit card is paid off every month, the banks have their own way to calculate the repayment.
     
  3. Fargo

    Fargo Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,304
    Location:
    Vic
    They only count some of your income for serviceability, they dont count yeilds above 8% and count expenses you dont have, such as way more interest than you actually pay. You can have F all in reserves, but as long as you earn a pittance from a Job for a while, you can qualify for a loan.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    RoadRunner likes this.
  5. RoadRunner

    RoadRunner Well-Known Member

    Joined:
    3rd Dec, 2018
    Posts:
    76
    Location:
    sydney
    Is there a fee on partially "paying off" loan? I assume it's different from putting money into redraw account where I can withdraw anytime.
    Once loan is "paid off", that money is sucked into loan(reducing loan balance) forever until next refinance.
    Is that right?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Generally no fees for paying off a loan, unless it is fixed.

    If you are talking about reducing loan amounts to get other loans, then increasing them again this will need a reapplication usually.
     
  7. tedjamvor

    tedjamvor Well-Known Member

    Joined:
    22nd Oct, 2019
    Posts:
    218
    Location:
    Melbourne
    Serviceability = Eligible income (as determined by the banks)

    Banks may require lower LVR than 80% to ensure a loan is properly serviced...

    ie $1m in cash and a $150k pa Salary.
    Bank could loan you up to $4m, but I dare say you'd be lucky to get above $1.5m
     
  8. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    3,346
    Location:
    Brisbane
    But that would be only on initial residental purchases
    Not after a few years when the commercial properties are yielding 30% plus
     
  9. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    4,982
    Location:
    QLD/Australia Wide
    Commercial rents for residential lending serviceability are capped too, then further shaded by 30% typically, sometimes more... so that great yield is good in reality may not help much regarding serviceability for new lending.
     
  10. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    3,346
    Location:
    Brisbane
    What about residental rental for commercial borrowings ?
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,599
    Location:
    Gold Coast (Australia Wide)
    and most brokers wont fall over the deal either, since there be zero comm

    ta
    rolf