Lenders easy on cashout

Ive found that there's been some adjustments to policy interpretation here from credit departments (st g/Westpac are a good example) over the course of the last 6 months. It was freer before, future investment use would do the trick. Now credit want more of a thorough explanation of equity releases than previously. They don't always need verification, but the purpose needs to make sense. I'm not sure how a $300k equity pull 'cash buffer' will fly with credit, but i think it may be tough in some cases depending on the lender.

Others are now in 'niche' positions because interpretation of responsible lending has changed here - e.g. AMP with their 85% equity release verification policy is quite strong. In summary - still possible with many, just more of an explanation required to dot the i's and cross the t's in an increasingly scrutinised credit environment.

 

Here is a quick summary of the lenders we use regularly and their cash out policy. This is a guide only and exceptions can be sought depending on the circumstances.

ANZ:

ANZ sometimes requires evidence when the applicants are self employed or company applications and the increase is more than $50k. They require evidence for anyone who has done an increase for more than $50k in the last year prior to the current increase.

The also require evidence when the LVR is over 80% and the equity release is more than $50k.

If the application is 80% or lower then they have really good cash out policy and evidence is not required for purchase of shares, deposit for the another purchase, Vegas bucks nights, etc.

Westpac and St George:

If the purpose is for renovations and the amount is under $100k then they need a written breakdown but no proof. If its over $100k then they will require quotes.

If the purpose is for the deposit of another property then they will require a contract of sale and you need to factor in the debt (if applicable) for the new purchase in servicing.

Purchase of shares require a letter from the Accountant or Financial Planner.

AMP:

One of AMP's niche's is unlimited cash outs up to 85% LVR with the "future investment purposes" explanation however their servicing calc sucks and they have one of the strictest lending/credit assessors in the game.

CBA:

CBA doesn't have a set cash out policy but depending on if its lower or higher than 80% LVR will make a big difference in what you can do. They are generally good but it really depends on the the overall application. Much like Westpac if the purpose is for the deposit of another property then they will require a contract of sale and you need to factor in the debt (if applicable) for the new purchase in servicing.

NAB:

NAB's cash out policy is very clear in that they require evidence when the cash out amount is over $250,000 (regardless of LVR) and LVR is over 80%.

Pepper:

Pepper's cash out policy is max 20% of the loan amount. Their policy is similar to AMP.

Resimac:

I really like Resimac's overall policy and their cash out is quite good in that its unlimited cash out up to 80% and their servicing calculator is not too bad.

La Trobe:

Unlimited cash out policy up to 80% but their fees and interest rate is high.

MyState:

Their requirements are quite clear in that nothing is required up to $50k.

If the equity release is between $50k and $350k then you need to provide a breakdown of the purpose but actual evidence isn't required.

If the equity release is over $350k then they will require evidence.

These are the rules for this month and these rules can easily change next month as lenders are under the pump to tighten up their cash out policies. Having said that most of the changes were done recently.

 

So again guys - what is the short list of responses that don't raise eyebrows or attract scrutiny (if its not for buying another property)? The funds are for......

 

2.5mill?? How? Can you share details (no names required)?

• Was his/her business yearly income in the millions?
• did they cashout up to 80%?
• What was the LVR before/after?
• Size of portfolio?
• etc etc

 

Food for thought tx Rolf.
So were they encumbered from structuring or were they bona fide paid off?
And what's an upfront val??

 

Also depends on source of income. I've got a very healthy LVR but overseas income - currently (within the last month) not a single dollar can be released.

 

How do you avoid WBC Credit department?

 

Here is a joke for you:

What did the assessor say when an application was submitted for cashout to consolidate a car loan?...

No, irresponsible lending to consolidate a car loan over 30 years.

......ummmm what?

 

Wow, that's gotta be a joke yeah?

 

The 30 year cost of the loan will cost greater than the forced accelerated repayment at a higher rate - so the lender would be effectively making the client worse off. Meanwhile the purpose of funds is depreciating heavily during that time so they will end up with a debt for an asset that would need to replaced well before they pay it off.

Doesn't surprise me at all that they would not be happy to do this.

Obviously there is some cash flow benefits doing this, but the lender has to look at whether that is truly responsible from a regulator perspective should they be audited.

 

How is it irresponsible? You're taking a loan that will be anywhere from 5-7 years and stretching it out to a 30 year term (and probably re-aging the loan too ie you've had the loan for 3 years already, now you're stretching it out for another 30...).

Even though the interest rate will be lower the actual interest paid will be a lot higher. That's a big sacrifice for a bit of extra cashflow each month.

Say you have a $30k loan at an interest rate of 10% with a loan term of 5 years and it takes you the full 5 years to pay it out then that's $8,245 worth of interest you're paying.

Same $30k rolled into a mortgage at an interest rate of 4.5% for the full loan term that $30k turns into $54,722 over 30 years.

That's not even taking into consideration the expected life of the asset. Say you have the vehicle for 5 years and then want to buy a new one. You're still paying for the old vehicle.

Only way it could make sense is to have it as a separate split and pay it down with the original loan term in mind, hence why the assessor knocked back a loan term of 30 years for an asset that would not last that long and cost you a lot more in the long run.

I'm sure it would have been a different story had you presented the consolidation to the assessor at a reasonable loan term.

 

I'm inclined to agree with the assessor. The borrower will still be paying off the car decades after it's scrapped. Whilst the day to day cash flow is better to consolidate, the long term costs are significantly higher.

There is a simple way around this. Set up a separate split for the car loan with a 5 year loan term. This way it's paid off within a similar loan term but at home loan rates around 4% instead of car loan rates around 10%. Repayments end up being about half way between the original car loan and the 30 year consolidation figures.

The borrower gets a better deal but doesn't spend the next 30 years paying for it. Assuming it services (which is a little harder), credit assessors won't have a problem with this.

The best solution though is to simply put aside $100 per week. To put it another way, every time you fill up, put the same amount of money that you paid in fuel into a savings account. This will give you a new car every 5 years (or by the time the first car starts to show some wear).

 

Surely you'd take a cash out in a separate split anyway.

A car loan is going to affect your servicing far more than 30k secured over a home loan.

If you continue with the previous repayments of the car loan into the new split on the home loan you'll have it payed off in less than 5 years due to the interest savings.

 

I am still learning this game but am having a hard time understanding why buying a car or a boat or furniture or a holiday over 30 years with a cash-out is acceptable but consolidating a car loan is not?

I am sure all the brokers here have submitted hundreds of loans for personal use cashout over the tenure? What did you say was the purpose and why did the assessor deem that acceptable over 30 years?

The reality is the assessor should say "Responsible lending says you should go get a unsecured personal loan for your holiday because over 5 years its cheaper". But lenders do or atleast use to advocate using equity to take holidays.

 

@albanga you're right. There's no consistency to how lenders interpret their own policies.