Interest rate after construction

Discussion in 'Loans & Mortgage Brokers' started by OzziMelbourne, 26th Apr, 2021.

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  1. OzziMelbourne

    OzziMelbourne Well-Known Member

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    Hello Comrades,

    I’m trying to get a construction loan for my next IP.
    During the application process, I got an approval letter from my lender & the letter says that
    A/ during construction, the interest rate is 4.99
    B/ after construction, the interest rate goes down to 3.5

    I got a loan contract and it says that
    A/ during construction, the rate is 4.99
    B/ after construction, the rate would be a typical market rate for IPs and it is currently 4.99

    when I went to the lender & asked them to reflect the reality in the contract, they resisted. They said that the letter says 3.5, you have all correspondence proving this and therefore when the magic day comes in, they would drop the rate.

    Should I insist on changing this value in the contract?

    The contract is legally binding and if signed off by me, should prevail in my view compared to some letter that was not signed by me anyway. Therefore, in my opinion, trey can easily keep it after construction and I can’t do much except refinancing

    thanks for your thoughts
     
  2. shorty

    shorty Well-Known Member

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    Those rates seem high
     
  3. OzziMelbourne

    OzziMelbourne Well-Known Member

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    Thanks, my question was about a different issue, which is a difference between the contract and the letter of offer
    I do not care about 4.99 during construction or 3.5 after, I care about an option of 4.99 after construction
     
  4. Morgs

    Morgs Well-Known Member Business Member

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    If it is variable it is completely subject to change in any case
     
  5. OzziMelbourne

    OzziMelbourne Well-Known Member

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    Yes, I do understand it

    I guess, my worry was about the high rate in the contract after construction when this rate contradicts the letter of offer
    I suppose, my question was if I have to insist on rates matching or decline signing the contract if they disagree
    Also, if anybody had such an experience when post-construction rate in the letter of offer was much lower compared to what the contract specified
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    Refinance after you get the occupancy certificate to get a lower rate.
     
    Hamish Blair likes this.
  7. OzziMelbourne

    OzziMelbourne Well-Known Member

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    Yes, this is an option and I understand

    what I don’t understand is why the lender resists to match the post-construction rate in the contract and the letter of offer and trey are significantly different

    it’s the first time I’m having this kind of experience
     
  8. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Generally it would note on the contract that once construction finishes, it will revert to a lower rate if its approved as P&I.

    If its going from IO to P&I it should typically show a lower rate.

    Not knowing who the lender is and not understanding what structure your loan is approved at, its a little hard to confirm, but it doesn't seem like it's a major lenders youre going with.
     
  9. Scott No Mates

    Scott No Mates Well-Known Member

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    Significantly different risks for the lender - it's easier to sell a completed house than a ½ built dream when the builder goes bust.
     
  10. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Maybe they are just lazy to request for redocumentation.
     
  11. Redom

    Redom Mortgage Broker Business Plus Member

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    That is a strangely worded contract. This Latrobe with those rates?

    If it means anything, many banks have 'post fixed' rates in their contracts exhorbitantly high - borrowers don't actually need to pay that as they get post fixed discounts well in excess of the standard discounts applied. A lot of major banks work like this.
     
  12. OzziMelbourne

    OzziMelbourne Well-Known Member

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    It’s not a major lender because I exceeded my borrowing capacity with all of them
     
  13. OzziMelbourne

    OzziMelbourne Well-Known Member

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    It’s Mortgage House
    I didn’t go to Latrobe or Pepper probably because I already have one of my IP loans with Mortgage House

    I just find it strange that the letter of offer says 3.5 post construction while the contract says 4.99

    One option is that they are lazy and just don’t want to change one number and re-issue the contract
    Second option is when they are doing this deliberately and when my construction is complete, they would keep going with 4.99 and tell me sorry but you signed the contract that clearly stipulates no rate reduction after construction is done
     
  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Warning sign to me for a lender to do that

    Its likely just a doco error, yet your branch person or broker perhaps dont want to push back to have new docs issued

    when is settlement due ?

    ta

    rolf
     
  15. OzziMelbourne

    OzziMelbourne Well-Known Member

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    my land settled months ago with a different lender. Therefore, there is no settlement date for this loan because it’s about construction and refinancing land.
    So, time is not critical for me and in theory I can ask them to align the contract & letter of offer and wait
     
  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    cool

    stick to your guns

    ta
    rolf