refinance got rejected

Hi All,

I have been approached by CBA to refinance my IP early this year. They worked out my serviceability for 550k loan for PI or IO are both good, but when i launch the application for IO loan, they recalculated everything again and realised the max borrowing capacity is 100k short, so application got rejected.

I have tried to talk to my mortgage broker, he had run the calc for my serviceability, and suggested only 2 lenders will approve my loan, both over 5% rate, so i didnt change.

I am with Liberty for this investment loan, IO, LVR 80%, ~5.2% rate (very high!!!!!!)
other loan for my PPOR, IO, LVR 80%, 4.1%

Any suggestion of what I should do to get a lower rate? or any lender you can suggest which have more chance to approve my refinance?

Thanks!!

 

You have provided a lot of useful info but its still impossible to calculate your borrowing capacity and give you a straight answer.

I would recommend engaging another broker for a second opinion. They may be able to pick up on something that would increase your servicing or suggest ways you can increasing your servicing.

I think there are a couple of lenders you can jump to from CBA. Jumping to Liberty from CBA is a massive jump but then again the broker has a lot more info than what we have.

 

A couple of things that might help.

1. Do you have credit card debt where you can reduce the limit or close down the card?

2. Would you consider P&I repayments on the IP loan? That will help with servicing

3. Which lender is the PPOR debt with? If you considered switching to P&I and refinancing to a 30 year term that may also boost your borrowing capacity. If you took this over to CBA as well as the IP loan the aggregate borrowings should result in a decent rate discount and one annual fee (loans don’t have to be crossed up either)

Cheers

Jamie

 

Have you tried anz bank?
My ppor and ip are.both under 4.2 and 4.8%

 

Prob won’t qualify if servicing is an issue with CBA

 

Suggesting a lender without knowing the full picture is like buying you a pair of shoes without knowing your size. I understand your frustration. It has become a common theme amongst many.

Your best chance to find a solution is to get a second opinion from another broker. A simple omission in the facts can often lead to a completely different outcome, especially in the world of property finance. You have nothing to lose & something to gain.

 

Toshae

 

Touché

 

80% lvr at 5.2% is higly geard investment. where you high when you did the numbers? i recommend sell it if you cannot refinance for lower rate

 

Re servicability, How does CBA treat existing debt with other financial institutions v existing debt with CBA. I understand for existing debt with other financial institutions, they take actual repayments and apply a 30% uplift. Fairly normal. But what happens if that existing debt was with the CBA. Is it still margined up by 30%?

I ask this question for the following reason. If I intend to finance a new IP with the CBA, is it beneficial from a servicability POV to refinance some of my existing debt back to the CBA ahead of time?

 

@Harry30 your comments about how the CBA treats other lenders debt is correct, but they calculate that on the remaining amatorisation period.

How well this works for your circumstances depends on the nature of our existing loans. If they've got a 10 year interest only period and are on a reasonably high rate, it's probably not going to go in your favour. If they're 30 years P&I having them with other lenders will probably give your servicing a bit of a boost.

The CBA also tends to have higher living expenses than some other lenders and they treat other forms of income may be treated more conservatively. Thus they're not the only answer to getting the most out of your servicing.

To really understand this you need specific analysis and advice.

 

Why used liberty for your current loan?

Have things changed significantly after the liberty losn? ( Income increased, expenses reduced, liability reduced)

 

If servicing is the issue with CBA and you want to refinance to lower rates, you may want to try:
Resi, Firstmac, Pepper. Servicing is slightly better than CBA in lots of circumstances & rates are likely lower than Liberty.

If you failed with CBA, your unlikely to pass with ANZ/other mainstreams. In most cases, today's lending calculators are far too similar to each other to produce wild differences in borrowing capacities.

Perhaps it may just be a case of waiting for a refinance and doing it later too.

 

One related question that has been nagging at me. Assuming you have used a secondary non bank lender in the past to purchase an IP (just assume Pepper for the purposes of this example), mainly for servicability reasons (ie. you did not service with the major banks). Howver, over time, your servicability has improved (reduced debt, increased income, etc) such that you could now move (refinance) the loan from the secondary lender to one of the 4 majors.

Would you refinance now?

Assume there is no interest rate difference. And assume the person wants to keep borrowing to expand portfolio, so may want to use secondary lenders again as debt increases and servicability tightens once again. And I say ‘now’ because as you borrow more in the future and servicability tightens, the opportunity to refinance will disappear.

 

I'd probably get away from the third tier lenders as quickly as possible, unless there's a compelling reason not to.

Firstly, as rates increase, you may loose the opportunity to refinance. It wouldn't surprise me if lenders increase living expense assumptions. Increasing interest rates will mean assessment rates go up. Plenty of possible reasons why things could degenerate in the future.

Secondly, the major banks and second tier lenders do try to remain competitive, whilst the third tier lenders generally don't. I tell a lot of clients that I can't do much to help them refinance, but I can at least try to renegotiate rates to get them a better deal with their existing lender; usually with a reasonable result. Liberty and Pepper tend not to do this for a variety of reasons. Even when they advertise cheaper rates, they rarely apply these to existing customers.

 

I think that is right. Among other things, unlike the banks, I find the secondary lenders will just not budge on rate. And their funding base is less stable than the major banks, and hence more susceptible to ‘rate creep’ particularly when credit markets tighten.

 

According to my experience, WBC may give out a much higher amount than CBA does, although unsurely 100k. Need to discover all the elements to see the possible solution.

Also, Their IO rate is the best at the moment. And the rebate is very attractive.

 

Thanks guys for comments an suggestions.

I have almost double the borrowing capacity for most major banks at the time just before i decide to buy, and comfortably fit my IP budget (i didnt try to max out all my capacity), unfortunately APPA tightened all finance at the time i buy, therefore i got no choice but Liberty.

Even though i do not have any problem for repayment, but I always want to jump to other lender for lower interest, but seems like everything getting even tighter for me to refinance.