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Lenders that will allow commercial property as secondary security

Discussion in 'Property Finance' started by Hockey Monkey, 22nd Oct, 2015.

  1. Hockey Monkey

    Hockey Monkey Active Member

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    I have a residential investment property loan with CBA where they lend 100% against the residential property itself but with a small commercial property as secondary security as long as the total LVR is < 75%

    With their two recent interest rate bumps, the rate is now 0.47% higher than other loans I have which are against my PPOR.

    Now whilst rate is not my #1 priority, I'd prefer not to pay an extra $4K in interest unless I have to. I am appreciative that my current arrangement has a significantly better rate than a commercial loan.

    Is anyone aware of other lenders that allow similar 100% investment lending when a secondary property is attached?
     
  2. tobe

    tobe Well-Known Member

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    Lots of lenders will cross or xcoll commercial and residential securities.
    It's a bad idea for lots of reasons.
    How long has it been since you set it up? If the resi property has grown in value you might be able to release the commercial security and get a 'normal' loan. You then have a commercial security you could use to leverage off later if you wanted to.
     
  3. Hockey Monkey

    Hockey Monkey Active Member

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    Would you mind suggesting some of the 1st or 2nd tier lenders? I quite like the idea of NAB P&I @ 4.14% or so for investments, but they don't seem to allow crossing commercial and residential securities.

    Understand the tradeoffs will crossing, I just don't think they outweigh the cost of paying commercial interest rates. Have several other properties that are not crossed.

    With all the change going on between lenders, I also don't want to pay LMI and end up in a situation like AMP when they upped their rate by 1%. I am an engineer, but not a member of Engineers Australia so don't qualify for higher LVR's at some lenders.
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    there are some pretty sharp comm fixed rates out there ...............

    if rate isnt your number on prio, what is ?

    Asking so we can help : )

    ta

    rolf
     
  5. Hockey Monkey

    Hockey Monkey Active Member

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    I have a settlement for another residential investment property in about 6-8 months. It was off the plan in early 2014 so I'm hoping to get a valuation above the purchase price by the time it settles. As a fallback, I would like to extract 15% out of another property for (have paid a 5% deposit already). This should be possible from my other loans.

    This will leave me with a total of 6 properties (2 commercial, 1 leasehold holiday rental, 1 PPOR and 2 other residential investments). Happy to pause on property at that point. Got enough exposure to property and will start looking at increasing shares exposure to diversify.

    So I guess for this particular refinance away from CBA, rate is a high priority.

    Other priorities of my overall lending would be
    - Good servicing to cover the above pending settlement, but I can choose the right lender for that transaction when the time comes.
    - Good cash out policy, but I think I have that covered with other lenders
    - No LMI
    - No lender that has a history of shafting it's customers (Eg AMP increasing investment rates by 1% overnight).

    What else should I be worried about?

    I'd consider commercial lending if the rate was equivalent to residential lending (e.g. in the 4.1 - 4.3% range, however from what I've seen, it generally doesn't quite make it and then also has higher setup and ongoing costs.
     
  6. tobe

    tobe Well-Known Member

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    Separate the securities, get stand alone loans on each to 80%. You shouldn't have to draw the commercial loans as much as the others, just keep it in reserve. Get the structure right first.
    I acknowledge your comment about pausing property lending, however you still need to get the structure right. there are many unforeseen things that could mean you lose the whole portfolio if you are xcolled, just because you wanted a couple of extra points on the rate.

    NB, most lenders that take a commercial security as secondary, will give you a hybrid rate between resi and comm, like you have now. Separate them out, and then choose the level of debt (loan balance) you have against each one.
     
  7. Hockey Monkey

    Hockey Monkey Active Member

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    All my other properties are either unencumbered or not crossed, so I'm not losing any sleep having just two properties crossed. The unencumbered are either commercial or leasehold so don't really help, although I guess I could investigate a residential investment loan against the leasehold one which some lenders will do @50-60% LVR.

    It basically comes down to
    Current loan $918K @ 4.57% = $42K interest pa
    PPOR equivalent @ 4.1% = $37K interest pa
    Typical resi investment @ 4.35% = $40K interest pa

    Now lets say I do a split Resi/Commercial as suggested
    Resi loan $740K @ 4.35% = $32K interest pa
    Comm loan for balance of $178K would need to be at a lower rate than 5.5% for me to be in a better overall position than I am currently.

    I'd really only bother refinancing if there was going to be a material gain though which is why I'm really looking for a lender that will allow 100% resi investment lend with secondary security but with a rate significantly better than 4.57%

    Fallback would be to drop the commercial property as security altogether an switch to using the leasehold residential property via a uncrossed loan, although that brings its own limited lender options.
     
  8. tobe

    tobe Well-Known Member

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    rate, structure, rate, structure...

    ok. rate, first lender I looked up for commercial rates, Adelaide bank, under 65% LVR 5.49% variable, fix it 3yrs, 4.99%. 1year 4.79% rates are higher at 70% lVR and 80% LVR

    You will also get a better overall rate on the resi if you split them, as you will get a better rate for the PPOR portion, a better rate on any portion you choose to fix, or pay P&I etc.

    Rate and structure. Except structure is always more important.
     
  9. Hockey Monkey

    Hockey Monkey Active Member

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    The resi security is not my PPOR. My PPOR is already maxed out on other loans.
     
  10. Hockey Monkey

    Hockey Monkey Active Member

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    The other rises today with the rest of the Big 4 + STG etc narrowed that gap. I think I'll sit out chasing rates until my next property settles. Just too volatile at the moment to see who is going to be a good long term cheaper option.