Loan & lender sequence for maximum borrowing?

I've read a few posts where it's mentioned that by borrowing from particular lenders in a particular order you're going to stretch your borrowing capacity further.

Wondering if any of the brokers here can lay out that sequence?

 

The order would be different for every individual, entity, strategy and risk appetite.

You'd be best going to see a good broker and discussing your future plans and mapping out potential pathways

 

Westminster's right - it's different for each person.

 

It doesn't matter too much in my opinion unless you are paying lmi as it is easy to change lenders

 

Order of lender use is extremely important when trying to stretch your borrowing capacity.

Some lenders don't factor debts in company names that can service their debts, some lenders like Pepper and Liberty have generous calculations for existing IO debts, etc.

So what products you select, which lenders you use, etc is very important.

Cannot stress enough the importance of planning for not just your next purchase but also subsequent purchase/s - you need both an Accountant and a broker or banker. Both of these professionals need to work with you and each other.

 

There's some lenders that are a bit more generous later in the piece than others, but by how much and what you're willing to take on really depends on you and the circumstances. The 'Order of lenders' idea was a bit naive back in 2014 when it was being thrown around, it's even more so today.

Some general tips if you want to maximise your borrowing capacity with most lenders...

* In most cases, stick with principal & interest loans on the longest loan term they've give you (generally 30 years). Existing P&I loans are usually treated more favourably than I/O and you're less likely to get any nasty surprises later on.
* Aim for 80% LVRs if you can. Going above this will only set you back.
* Avoid cross-collateralisation. This will kill you eventually.
* Low rates make very little difference in the grand scheme of things and are often not competitive in the long run.
* Save as much as you can. This gives you options.
* Invest for growth. Cash flow is nice, but if it's stagnant, it doesn't improve things over time. Growth investments do better for capital and cash flow in the long run.
* Increase income.

 

Back in the day - there were more variances between lenders and the methods they used to calcuate max borrowing. These days most lenders have a very similar method of calculating max borrowing - most take new and OFI debt at 7%+ and P&I repayments.

General rule of thumb for those aiming to grow a large portfolio is to save the generous lenders (in terms of the way they calculate max borrowing) to the end - these days it's pretty much liberty, pepper/resimac, etc. You'll pay through the a** for these guys - rates and fees ain't cheap!

All in all - order of lenders is still a little important but it's not as complicated as back in the day. Just keep the few remaining generous lenders until last. There's no reason why you'd use them early on anyway if your servicing is fine.

Cheers

Jamie

 

Westpac have made some changes... effective 6 NOV

 

Also some cash out changes

 

Overall theres been a crunch between lender calculators in recent years. ADI's operate similar lender calculators to each other. Some have small variances to each other. Theres limited value in selecting lenders based on future serviceability with this group, as they're all highly correlated with each other (i.e. taking on debt with any, will impact future debt opportunities with all others).

Non ADI's can be broken down into a few groups:
- ADI type lender calculators (not much value)
- Middle tier lenders (Resimac, FirstMac); who offer greater borrowing power, but still assess your existing debts at higher assessment rates. This helps push the boundaries and access additional credit at very low rates. It won't extrapolate the portfolio significantly though.

And the biggie, for those that want to build very large portfolios or access extreme levels of debt:
- There's a rising tide of lenders that are targeting this market. Pepper, Bluestone, Liberty, etc. Most of these lenders have been purchased by very large asset managers worldwide and have access to greater funding lines now than they did in the past. This means that products are getting better & pricing is getting much sharper. Over the next couple years as the market accelerates and investor demand for credit rises sharply, these lenders will cater to demand. Already product pricing has come down significantly and competition is rising in this space. Prime investor products with very large capacities are available, debt shuffling opportunities exist, etc.

If you want to go down the very extreme debt take up path where DTI ratios go to double digits, you'll need to prepare your portfolio to do so (and risk mitigation strategies too).

 

Is that the same as incresing an IO split up to 80%LVR?:
Increase your home loan, Topping up, Home loan top up | Westpac

 

While I understand there are multiple factors driving serviceability outcomes and these may differ from borrower to borrower, does anyone have a view on how much this would increase borrowing capacity by roughly?

 

Sorry - I had forgotten to say... if we used their example, how much would we expect borrowing capacity change by (roughly)?

Thanks

 

Euro73, are the rental figures in the examples shown by Westpac shaded at 70% or 80%? What about OT & bonuses for income calculation, are they shaded also?

 

The easiest and best way to figure out your borrowing capacity is to talk to your broker. If you do not have one, there are plenty of good ones here. Some of them have replied in this thread.

I myself recently signed up to this forum and sourced my broker from here. Best decision I ever made after the banks were giving me inaccurate figures of my serviceability. Made the whole process of getting my pre-approval and will be applying for a loan soon so much easier and efficient.