Loans - best rates? Investment Loan

Discussion in 'Loans & Mortgage Brokers' started by Justin_mo, 20th Apr, 2022.

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  1. Justin_mo

    Justin_mo Well-Known Member

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    Hey all, just deciding on what loan and loan provider to use and doing some research. Also curious on what low variable rates everyone is going for lately.

    Anyone used companies such as "Reduce Home Loans" or "Tic Toc"? They are two of the cheapest loan providers I can find, but I assume there might be other companies close in price.

    So for a 90% LVR variable loan I see the rates of around 2.18% and 2.19% listed. However when I rang Reduce home loans they told me for that LVR the rate is 2.49% which is a fair difference from the listed rate of 2.18% on their website! So I also rang Tic Toc and they said their rate is 2.19% as listed. They are funded by Bendigo Bank and Adelaide Bank.

    Curious on any experiences with either company and on variable loans in general. I was also considering fixing some or all of my loan, but rates get a bit high.
     
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    You've mentioned lenders that have very low rates. Is this the only important criteria? Have you considered future needs with your larger strategy in mind? Do you even qualify for a loan with these lenders?
     
    Last edited: 20th Apr, 2022
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  3. Brady

    Brady Well-Known Member

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    Couldn't think of anything worse than being funded by a cheap online lender... great they advertised they're 'backed or funded' by a major bank. Whoever is backing or funding them is making money from them....
    Great whilst funding is cheap...
    And guess to what happens the banks backing/funding them aren't making as much money from there own business
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    That doesn't equate to the "best" loan - unless rate is the single most important factor for you.

    Are you going to need to release equity for future purchases/investments?

    Do you value having access to upfront/no cost valuations to see how your portfolio is tracking and whether it's possible to release equity?

    Is an offset account important to you (if the IP loan is your only debt then it's likely an important factor).

    Will you need to split the loan in the future for whatever reason?

    Do you value a decent online banking platform?

    I assume this loan is for a purchase - if LMI is involved have you checked whether the property is suitable to the lender's policy? If it's a refinance - then paying LMI again would surely be a deterrent to refinancing (unless the savings are massive).

    I can't speak for all online/no frill lenders - but some get you in with low rates that tend to creep up overtime (granted - a lot of well known banks are guilty of this too!). I've refinanced a few clients away from one of the lenders you've mentioned - their rates crept up and they weren't overly keen on reducing it for existing clients.

    Cheers

    Jamie
     
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  5. Chris B

    Chris B Well-Known Member

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    Many people seem to focus almost exclusively on interest rates. This is what gets in the news and what gets talked about with friends and colleagues but there are lots of other aspects that are important to consider. Variable rates can easily change while the fees and other restrictions/limitations of a loan are typically fixed as part of the loan contract or the lender's policy.

    If you want to borrow up to 90% of the purchase price, you should also be comparing how much LMI you will be charged. Whenever people are going direct to a lender, this is a huge fee that is often just accepted without realising how it is calculated or that it can vary by thousands between lenders. I suggest you speak to a broker so you can get a proper comparison.
     
  6. Lindsay_W

    Lindsay_W Well-Known Member

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    If this is for Investment, why not Interest Only repayments with an offset account?
    Do you have non-deductible debt (owner occupied property debt for example)?
    Is the 90% LVR inclusive of LMI or does that need to be added on top?
    If it includes LMI then your base LVR is approx 88% meaning you need 12% deposit plus costs.
     
  7. Cattails

    Cattails Active Member

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    Hi Justin,

    I am brand new to the forum. I just refinanced three properties with Reduce Home Loans, and am in the process of purchasing a 4th investment property with the .

    Depending on your profession, some of the big 4 (as well as other banks) may be willing to waive lmi on 90% love loans. My wife being a doctor, we used this perk to buy our first 3 houses to live in using Westpac and CBA. All three loans were presently with Westpac, however the rates were lousy at 3.39%.

    We recently refinanced all 3 for 2.16% at Reduce Loans at 80% lvr. Westpac and CBA both laughed at us, saying we had already borrowed $400k more than we could afford. Reduce refinanced all three. And we're also happy to loan us another $400k for a 4th property.

    I'm in the process of purchasing a 4th investment property with them now.

    Regarding the refinance, things were slow and the whole process took several months, but it did occur.

    These are no frills loans. But we are saving substantially. More importantly, at least as my broker explained, smaller lenders are not beholden to the same draconian lending laws the Big 4 are now stuck with. They got us finance when no one else would touch us.

    My experience with reduce is competent, skilled, met our needs, but slow, and the brokers very busy at present. Our experience with CBA was they were good and competent, but average mortgage rates. Westpac has always been slow and incompetent for us, but got our business twice, when they were willing to extend loans to us and CBA could not. Westpac also had expensive rates.

    I am very happy with our rates at Reduce, and did need need any of the bells and whistles CBA and Westpac had. Also, they use multiple different lenders... Reduce is just the broker, I believe.
     
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  8. Brady

    Brady Well-Known Member

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    @Cattails were you dealing through the broker > CBA or direct?
     
  9. David_SYD

    David_SYD Well-Known Member

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    Good post
     
  10. Cattails

    Cattails Active Member

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    I called them directly. And now work with a specific broker at Reduce. So far as I can tell from my experiencr, Reduce is just a brokerage (I may very well be wrong). My first loans through Reduce went to BC Invest, and my 4th when settled will be at Origin Finance. Never heard of either of these companies, but /shrug their rates are very good, and they were happy to loan to me, so...

    Would be curious if anyone has heard of or has opinions on BC Invest or Origin Finance. BC Invest was very clearly Asian, and overseas call centre with my brief interaction with them, but competent.

    Reduce definitely had options I've never heard of, and were never even offered when we made a previous purchase through a more traditional broker such as Aussie.

    Regardless, reduce offered me $600k more than Westpac or CBA assessed us as able to afford. Actually Aussie turned us down as well after the brief initial assessment, for our refinance. So I've been very happy with Reduce. It was more a bonus that they had some of the most competitive rates, though this is why I sought them out. All variable rates only for me.
     
  11. AM0_Dexter

    AM0_Dexter Active Member

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    I’d come across this name “Reduce” before and had a look. I was put off by the idea that it seems to be a brokerage, but they promote as if they are a lender. They don’t seem to claim to be either. There was something else about the fee structure…it was high application or discharge fees (or both?). Something like a $800-$1000 discharge fee from what I’ve heard.

    The reason why they give stronger borrowing power is they are not a bank. Less regulations.
     
  12. Justin_mo

    Justin_mo Well-Known Member

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    Very interesting thanks!
     
  13. Brady

    Brady Well-Known Member

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    Sounds good now, what happens if/when they jack up the rates and you can’t service the debt elsewhere to refinance.
    Are these all long term holds or some short term with plan to deleverage soon?
    Do you have a plan B?
     
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  14. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Reduce Home Loans is not a brokerage, they're a mortgage manager. The take money from other lenders, package it up, put their own brand on it and sell it to borrowers.

    They're not regulated by APRA, they're not a bank. This does mean they can bend or ignore many rules in the same manner that Pepper or Liberty do and thus they can lend quite a bit more than most lenders.

    There's a few hints on their website as to this, the obvious one is they're offering Alt-Doc loans which aren't available through mainstream lenders.

    They are offering extremely cheap rates. I'd expect like most leders of this type, this offer is primarily to generate business in the short term. There's no guarantee that the rates will stay as competitive in the long term. Granted virtually all lenders do this, but with mortgage managers, there's usually very little opportunity to renegotiate.

    The risk to the borrower in this is when rates go up, peoples response is they can refinance if the lender won't renegotiate. In this case this is a problem because as has already been indicated by several posts, people have exceeded their borrowing power with mainstream lenders. Thus refinancing is not a viable exit strategy for this type of lender.

    The risk with super cheap, non-conforming lenders is the borrower has no alternative. If their rates increase (which they almost certainly will), there's nothing the borrower can do about it.
     
    Last edited: 27th Apr, 2022
  15. Lindsay_W

    Lindsay_W Well-Known Member

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    Reduce Home Loans two primary funding lines are Adelaide Bank and Origin Mortgage Management Services (MMS).
     
  16. Cattails

    Cattails Active Member

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    Thanks Peter. Very helpful. I guess prior to starting with Reduce, Westpac and CBA had already both told me I was already borrowed $400k over my servicing capacity. Aussie also turned me down for refinance. Mostly safe lending laws I think. All these lenders previously gave me loans at higher rates than today, but suddenly their ability to lend disappeared, so I was already stuck regardless.


    My experience was CBA was they were honourable, and moved rates up and down accordingly as the RBA adjusted. Westpac however, I am sure would have raised rates, but never reduced my rates ever when the RBA lowered. The smugly ignored me every time I complain. I was stuck at 3.39%. When I finally put in my mortgage discharge, they offered to match Reduce. I told them what I really thought of being ripped off an extra $20k to $30k of extra interest. Westpac twice got finance for us, when CBA couldn’t, but that’s the only good thing I’d say about them.

    I don’t really see it as in the interest of any of these lenders to purposely rip-off their customers, and destroy their reputation and future business. I guess the risk is there, but then Westpac actually behaved like this, in my experience...
     
  17. Lindsay_W

    Lindsay_W Well-Known Member

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    There ability to lend didn't disappear, your ability to borrow did, probably due to changes to lenders serviceability metrics and or policy, depending on when this was it's likely APRA intervention had some bearing on these changes.

    Of course it's in their interest, they make more money, that's all they really care about!
    Unless you're a big fish they won't really care that they don't get your future business to be honest.
     
  18. Cattails

    Cattails Active Member

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    A very good question, and I should have a think about it. I mean I was already in this position to begin with, as CBA, Westpac, or any other bank would not touch me due to safe lending laws. I wasn't aware Reduce was a non-conforming lender.

    Ran an ammortisation calculator.

    My LVR is around 56%. $110k rental income. We are on a family income of $150k. I mean rates are going up anyway.

    Westpac actually ripped me off by never lowering my rates, and did the exact same to other family members. One family member has a loan with them at 5%, but since he retired, Westpac know he's stuck and refuse to budge. They also ripped us off on rates within the trust, and simply lowered they rate 1% or 2% when we called them out on it. So this is numerous consistent behaviour in 3 completely unrelated cases for me, on numerous loans. Westpac never lower rates for us when the RBA does, unless we yell at them, and even then usually won't.

    Reduce isn't some midway finance rehabilitation for people with poor credit. The standards were strict and high imo. I'm at an LVR of 54% with $1.4m, and we're literally maxed out at Reduce. If they purposely start ripping me off, I will leave. Given Westpac has consistently exhibited this feared behaviour, across 10+ years against literally all of my family, I'm inclined to believe this was purposeful and malicious. They offered to match Reduce rates when I finally left.

    In a free market, with many possible lenders, why would a lender want to lose many of its customers, and completely destroy it's reputation, simply to try and gouge me an extra what, 1-2%? Reduce's whole motto is cheapest rates, they beat any alternative I had by .2-.3%.

    LVR is around 56%. $110k rental income. Mortgage payments around $5,400 at present on P&I. $2,700 interest, $2,700 principal per month.

    Adding a straight 3.0% rate rise to 5.29%, my payment goes to $7,800 monthly. Principal $1,600, interest $6,200.

    Having just run an ammortisation calculator, tacking 3.0% onto my rates whether by RBA rises or whatever, would not be pleasant, and push me to probably chip in $1,500 a month or so. My bank account did not increase or decrease at Westpac's 3.39%. My new rate lowered my monthly payment by $800. I'd have to chip in $1,500 at 5.29%. On paper I'd be cash flow neutral, but would have to basically pay the principal component out of pocket each month. No problem. At a 3% annual appreciation is $75k a year on $2.5m of property. So I'd still be well and truly in the black. I could afford to wear a rate of 6 or 7% before I'd really start hurting, and considering looking for the exits. The first 3 properties I bought had a 5.2% yield. 4th one 4.5%, which I'm not very happy about.

    Any future purchases will be regional properties with gross yields of 6-10% (ie: $100k-$150k, $250-$300 rent. $350k, $400-$450 rent). I'm happy to sacrifice some capital gains for income, because if I keep buying in Gold Coast, Brisbane, Toowoomba, I'll keep running into borrowing caps, and the risk will grow ever larger. And the yields have gone to crap as prices have outpaced even the significant recent rent increases. QLD has great regional cities, most of which are growing in population, so hence thriving, and still appreciating, with rising rents also. So regional is where any future money I invest will go.

    I suspect with how leveraged people are, many other investors will be defaulting long before I'm at this risk. I'd agree with Macrobusiness that the supposed 3.0% rate rises will not occur, and that the market is wrong. The inflation we have now is coming from overseas. Long run, both technology and renewable energy are highly deflationary. I suspect even 1.5-2.0% of rate rises will have many people hurting badly. I'll still be happily adding to my regional property portfolio even at 5.0%, as the rents will cover all expenses, including P&I payment, or nearly all expenses. And 2-3% appreciation and annual rent rises, will over the years push things more heavily into the black.

    At worst, there is a risk any lender can arbitrary give me uncompetitive rates. Westpac has actually done this to me, twice, and my entire family. I lost $20k - $30k in extra interest, but eventually found a way out. That relationship is now burned for life. Yes I'd be somewhat concerned about lenders for credit repair behaving poorly. But such behaviour is surely bad for repeat business, and word of mouth. If I really get stuck, I can always exit by selling. But yes, if I have to use third tier lenders to further grow, I'll be looking very seriously at their historical reputations. However, if Westpac chooses to actually behave like this, I feel anyone potentially can.

    One reason I'll never touch Sydney or Melbourne is I never want to be in a negative equity situation, in which my loans are eating me alive, but I can't get out either.

    Resiliency wise, my wife and I always have the option to do extra shifts for more income, if the bottom falls out, or move in with family, approach family for a temporary loan as an absolute last resort. Sell properties. Easy or pleasant, no. But I just feel like with enough potential outs to escape defaulting on mortgage payments, and with moderate to high yield properties, there are a lot of ways to avoid default, if we are adament to avoid it, and willing to make painful sacrifices. Impossible we default ever, no, but then pretty much nothing in life is without at least some risk.

    Any way, half wrote this as it was time to take a step back, and re-evaluate before taking out further debt. But I'm comfortable, and will may add a 5th $150k-$350k property in a regional area if I can find the finance. Also happy to chill for now, and just absorb the rate rises, and save. Thanks for listening.
     
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  19. Justin_mo

    Justin_mo Well-Known Member

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    Thanks Cattails!
     
  20. Justin_mo

    Justin_mo Well-Known Member

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    Hey Lindsay, yes interest only could work. I don't have a lot of cash that I will need an offset account.
    Yes I have a property I own and live in. Does that make a difference to new loan setup? Already pulled my equity out, ready for deposit.