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Order of lenders

Discussion in 'Property Finance' started by BenWa, 16th Oct, 2016.

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  1. BenWa

    BenWa Member

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    Hi all,

    Does the order of lenders used for investment properties matter? And if so, what is the best order of lenders to use? I currently have 3 properties through CBA (who said I can't get another one through them) and am thinking through which lender to use for my fourth investment property.

    Cheers,

    Ben
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it matters. The order will vary depending on the circumstances. It is generally a good idea to use up the lower servicing lenders first as you won't have access to them later.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    However, it is always possible to move lenders. But this could be costly to do if you had paid LMI initially and intend to borrow more than 80% when moving.
     
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  4. tobe

    tobe Well-Known Member

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    And it gets harder moving lenders if you have more than a few properties and they are crossed.
    At that point it usually becomes a drawn out process of refinancing all of the properties to a new lender as seperate securities, and then Picking off one or two to access equity for subsequent purchases.
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you can't get any more with CBA it would be wise to get a broker to have a look at what you do have before you buy again - if the properties are cross secured, you won't be able to uncross them after you buy another one.

    Also get vals done and access equity before the next purchase.
     
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  6. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    It will likely service with a lender like NAB but there may be a better option to explore first depending on your unique situation and short, medium and longer term goals.

    Get a broker to review the current structure with CBA first as this may need to be addresed before moving forward with more purchases. If you dealt direct with bank it likely wrong and 60% of brokers will mimic the same structure as the bank offers.
     
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  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I reckon probably higher even.
     
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  8. BenWa

    BenWa Member

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    Hi Terry, thanks, who are the lower servicing lenders, or where can I find this out?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It all depends on the borrowers situation. different types of people will be different - difference sources of income, different family composition, different employment types etc.

    You won't be able to find out this information unless you can become a broker. Then you will learn the different lender policies and get access to their calculators.
     
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  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    There's a bit more to it than simply figuring out an 'order of lenders'. Simply figuring that out and following it will put you into a corner or making mistakes that might eliminate some of the lenders you'd otherwise use later.

    Get some personalised advice from a broker that understands lender policies and how it can be applied to building portfolios over time.
     
  11. dabbler

    dabbler Well-Known Member

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    A Broker ?

    You can read a lot on here and work a lot of it out in general terms, but the goal posts are always changing.
     
  12. Redom

    Redom Mortgage Broker Business Member

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    Breaking down your question a bit further: Every time you go to the bank and ask for new money they will look at your income and your assessed expenses.

    As a guide - they calculate your income - salary + 80% of rental + others depending on individual situation. They calculate your expenses: Living + personal debts debts + mortgages.

    The income treatments is relatively uniform. Most lenders will accept 80% of rental income, most lenders will include 100% of base salary and 80% of overtime/bonuses/commissions. There are indeed variations to this (e.g. ANZ at 75% rental, Homeloans at 100% bonuses) - but all in all, its reasonably similar here.

    Now for investors, the biggest variances between lender calculations is the treatment of 'mortgages' on the expense side of the ledger.

    This is where swapping lenders from one to another can lead to a large increase in serviceability.

    As a guide, if you have ~$1mill in debt with CBA, at 4%, I/O:
    CBA will input: ~$6.3k p/m
    ANZ/others (most): ~$7.25k p/m
    NAB/Advantage: ~$4.3k p/m.
    This will vary slightly, but the key point is theres a difference on the expense treatment.

    Hence by switching calculators from one major to the other, you've potentially reduced your expenses by $2-3k p/m - a $24-36k expense drop per year. This has a massive impact on serviceability. For your next individual purchase, assuming your current capacity is just $0, it will increase your capacity to ~$350k.
     
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  13. r3ckless

    r3ckless Well-Known Member

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    excellent post Redom!