Loans with 1 lender or multiple?

Should someone with a few property loans be kept with 1 lender or spread to a couple or more lenders? I have came across some comments in other threads that says it's best not to have all the loans with 1 lender, but I can't seem to find a thread that discuss the pros and cons on this. Happy to be pointed to the thread if it's already been discussed in the past.

Taking my case for example, I've got 1 PPOR loan and soon to be 4 IP loans, all IO with 1 bank. My broker has never suggested splitting the loans to a few banks.

The pros that I see with having all in 1 bank are:

• Only need to pay 1 package fee
• Better discount, although that seems harder in the past year or so

The only drawback that I can think of is having all the eggs in one basket. If the bank decides to jack up rates massively, then it will be painful. But given that it's not difficult to switch lenders these days, is it such a drawback?

I'm sure I'm missing some other obvious pros and cons. Happy to hear everyone's thoughts.

Thank you.

 

Pros
More bargaining power
Administrative ease

Cons
All monies clauses
Lender will know when you are in trouble
Can only get owner occupied rates on one of those loans with most lenders

 

It's not a given that it's easy to switch banks these days btw. I'd look at refinancing the ppor loan at least and getting another brokers opinion on future plans and strategies.

 

It's not really as simple as determining who's going to give you the best rates based on volume lending.

There's a good argument for using the more 'mainstream' lenders in the initial stages. I wouldn't put 4 properties with a single lender myself, as it can become a risk to you the investor.

The mainstream lenders are fairly conservative (if we compare them to 18 months ago). If you want to aggressively acquire properties, eventually you'll need to start using privately funded lenders. The trick is figuring out when to do this. Too early and your loans might cost more than necessary. Too late and you might only get into one more property, instead of 2-4.

Fundamentally this isn't about cheap rates, ease of use or loyalty. That's certainly a factor but the game is really about strategically planning your investments to meet your longer term goals.

 

@Terry_w how do one prove the PPOR status btw? I can't actually remember, but thought the bank will use the property where all the docs are being posted to perhaps? Also, what's "all monies clauses"?

Good points on strategies and serviceability.

For my case, I'm not aggressively building up my property portfolio at the moment. PPOR paid off (or rather offset account filled up) and LVR < 50% on total portfolio. I did get more question with latest loan, as the monies are all parked in offset accounts rather than paying down the loan itself (so, bank would view the LVR at much higher rate). So, perhaps at this stage, there's no strong compelling reason to spread the loans to more than 1 bank?

Agree that switching banks may not be as easy now, something for me to watch out for. I did switched 3 banks in last 6 years in search for better discounts... looks like those days are gone now, sigh.

 

Wouldn't a large part of the end game is cheap rates? I've never tried smaller lenders before, but have always tried getting the best deals from the larger banks.

In the second case, if the 10 000k with other lenders is also at 80% LVR, wouldn't CBA view the serviceability the same as the first case, where you have 80% LVR all with 1 lender?

 

I would suggest never rely on one bank, and I also suggest using only one for your home you live in.

rate is part of the puzzle, but it is not the only consideration.

Also learn about who and where lenders get the funds from, so your not potentially doubling up without being aware.

 

Some lenders don't require any proof of main residence status, other lenders may want to see proof such as a drivers licence.

I was thinking of situations where you have a main residence with lender A, but then intend to move into another property so you can claim this as the main residence with lender B. Don't tell lender A you are now renting the property out and continue to enjoy the lower rates.


All monies clause is where you agree that any security that lender has of yours can be used to satisfy any debt you have with that lender even if it is not mortgaged for that particular loan.
See
Legal Tip 130: What is an All Monies Clause? https://propertychat.com.au/community/threads/legal-tip-130-what-is-an-all-monies-clause.10694/

 

For as long as I can remember, I have had loans with multiple lenders. One reason is the "All Monies" clause but it is not the main one.

I don't buy all my fruit, meat and groceries from the one store or from the one supplier. Why would I do it when I want to buy money?

I don't like the idea of one bank knowing my full financial affairs. Even when they want to do a "loan review" and they want A&L statements, I&E statements, tax returns, ... I try to bluff them by saying it is too hard/time-consuming and, if I have to do it for them, I might as well as take this information pack to another bank and see whether they want some new business.

Sometimes, the bluff works and they suspend/cancel the review.

At other times, they have called my bluff and I have had to go and see another bank. In the last few years, I can remember relocating two of my investment loans (and their associated Offset accounts) to another bank.

It is a while since so have had a loan review. May be the word had got out .

 

People often simply ask what the cheapest rate is. Sometimes the first question should be, "Who will give me the money?"

Would you rather cheap rates and 3 IPs, or rates 0.2% higher and 6 IPs?

What if all your properties are with one lender, but that lender won't let you release equity because you can no longer afford to borrow (within their criteria). Additionally they may not allow you to refinance a single property because they know you'll only release equity, which again is outside their policy.

The only option might be to refinance everything which could be expense and time consuming, if possible at all. Not a good outcome.


There are advantages to using a single lender to a point. You need to diversify before you reach that lenders limitations however.

 

Thanks everyone for the input. Very useful and certainly something for me to think about.

I like the idea of having PPOR financed at a different bank. In my case, I am tempted to just pay it off altogether as I can't see it being used as an IP in future. I have mentioned it to my broker but she has been reluctant to do so, keep saying the discount I have from the bank is good. I suspect it's because she might not like losing the commission.

 

Pay an equal amount into an offset leaving just a small amount short, so it is like being paid off, then if you have trouble getting loans & your sure it won't be an IP, then you could pay it out.

You can refinance easy enough & best find a broker that will work with you if you suspect this, no good having one that just does things to be most beneficial for them.

Also, depending on what line of work and risk etc, thoughts on asset protection may come into it.

 

If the offset is full she doesn't receive any commission on that particular loan anyway. Total lending does make a difference when banks do their individual discounting, but I'm sure she could find a similarly priced product elsewhere.

 

@dabbler Agree monies parked in offset similar to paying off with upside of being able to use the fund easier, and I've always liked that idea. But in the latest loan that I took, it's getting harder for me as I think I'm quite close to my serviceability level. Self managing 2 properties with rent being paid by cash probably not helping as well, but that's getting sorted soon.

@tobe Thanks for clarifying the broker commission. I thought I read somewhere that there's some sort of trailing commission but I could have misinterpreted the context.

 

That would be pretty slack - wanting you to pay thousands in interest so she could get 0.15% pa out of it.

But she may be right for other reasons.

Why pay off a main residence loan when you would be getting a lower rate?

What you could do is to pay it off, or to $100 and then redraw up to the limit and use this to pay off the highest interest rate investment loan you have.

I looked at this today for a client and he could save $1300 per year in interest doing this.

 

I think I have misinterpreted your original post. I take it that your original post is saying that any future borrowings with 1 bank will depend on how much my loan and LVR. Feel free to correct me if I'm still missing the point.

The PPOR offset is full filled already, hence, I don't really utilise the lower rates. So, paying it off and improving serviceability is an attraction to me.

Wouldn't paying off or paying down the PPOR, then redrawing to pay a higher IP interest rate not be tax effective in some cases? In this case, I will have to pay more for my PPOR interest, which is non deductible and pay less for my tax deductible IP interest. This strategy would favour positively geared IP but not for negatively geared IP?

 

No, it would not change deductibility. This is a refinance.
You could still pay off the non-deductible debt, but reborrow to pay down or pay off investment loans completely. Interest will still be deductible but you will be paying a lower interest rate and this will help improve serviceability even further.

 

I'm still not too sure I am fully across how this will work. Say, for example, I've a PPOR worth $1m with $800k offset, and similarly IPs worth $1m with $800k offset. Interest rate on the PPOR is much lower but I've already fully topped up the offset to the full $800k. Meanwhile, the IP offset remains empty at $800k.

So, potentially, I could look to pay off the PPOR. Then have a new IO + redraw loan (?), which would give me a redraw of $800k? Take the 800k out and plonk it to the IP offset.

The interest charged on the PPOR redraw of $800k can be tax deductible?