Refinance to Liberty? Recommendations?

I have hit my servicing limit, and due to some other issues (shared debt, so most banks will count the whole debt towards me etc etc), Liberty was the only bank my broker could find that would lend to me. The loan is currently with MacBank.

It's about 400k in debt, not much, but it's about to go from I/O to P&I in about 12 months, so I figure with this and all the macroeconomic changes happening, it would be wise to refinance asap (plus I needed the equity release for something else).

I have about 1.5m debt in total. I only recently decided not to renew my work contract, because after nearly a decade of working without a break I decided to take some time off. I have a cash buffer of about 500k. It's a big buffer, but remember I'm planning to take a decent amount of time off (up to a year or more) to travel etc. I'm also considering moving overseas, so I imagine that would take me a good 6-12 months to get myself up and running again.

Would it be wiser for me to stay with MacBank and take the liquidity hit when it switches to P&I, or accept the loan Liberty has already granted (just waiting for final paper work now). My plan would be to fix the rate if I accepted Liberty as I understand they can be more unpredictable than most banks.

With so much bad stuff being mentioned about Liberty I'm wondering what's worse - the hit to my buffer or Liberty?

Thoughts?

 

If you want to continue to purchase property, you're probably going to end up at Liberty but if you can avoid using them, I would.

I don't think I'd refinance to Liberty to simply continue an interest only period. This is going to happen eventually and the longer it's put off the worse it will be when it does happen. Adding a higher risk lender like Liberty could make that even worse again.

It was suggested recently that if you're going to Liberty you need to have an exit strategy. The problem is given that Liberty's serviceability is significantly higher than others, the only exit strategy for many years may be to sell the property.

The ability to buy another property or more will probably have a significant affect on longer term wealth. It's probably worth the risk of using Liberty.

Avoiding IO for another 5 years (and that's probably all it is, with greater cash flow consequences later) only has a negligible effect on longer term wealth. Probably no worth the risk.

That's my opinion and it's grounded in my own circumstances. For others the outcomes could be quite different.

 

Ok so if Liberty is one of the bad ones, where would you put Macquarie?

Am I stuck between a bad and a worse choice? Or if things get tight, are Macquarie likely to be one of the banks you'd probably want to be stuck with?

Extending IO and holding onto as much cash is important to me, but if I'm seriously jeopardising myself in 3 years then I will pull back.

 

For the broker brains trust... are mac bank io extensions tick and flick or credit assessed or full assessment?

 

Credit assessed, full assessment.

 

If you leave Macq, you won't get lending with them again so think carefully, or get a professional to look over your portfolio for a second opinion.

There may be a middle ground between Macq and Liberty.

 

I have 3 with Mac. I just moved one to Westpac and I was considering the second to Liberty.

Did I make a mistake with Westpac?

 

No, that's probably okay - I'd move the other to WBC too over Liberty, if possible.

 

Ok thanks that's encouraging to hear.

 

If you managed to move one to WBC I'd take that as an indication that there's definitely potential to shift the other debt to WBC or another lender in the spectrum before Liberty.

Not point moving your chess pieces to the last possible option when you've got plenty of other moves you can make.

 

My broker says it is my last choice though

So I either extend IO for 3 years with a small equity release with Liberty or leave it with MacBank, which expires in 12 months and no equity release.

 

I bet you can go to WBC still. May just need to be done in stages. Also look at rams, LATROBE, Adelaide, pepper - lots of options if you've been able to use WBC.

 

Liberty isn't really that competitive now in terms of their servicing after their policy changes. They now assess new loans at 7.5%.

 

I would consider getting a second opinion?

 

He's a super respected broker here so I don't doubt his advice

Btw with this APRA stuff limiting IO loans now does this change any of your views on this? I'm on the verge of having to decide.

 

Whatever you decide to do i would do it quickly.

Liberty will inevitably get caught up in this mornings APRA recommendation on warehousing and the requirement to service at sensitized rates on all loans.

 

Hey Pete, Would you mind sharing why selling the property might be the only exit strategy? I suppose because to be able to move to another lender or get another loan, the debt would have to be reduced significantly, which can take a very long time. Therefore in order to keep expanding the portfolio it might be more efficient to sell the property at a profit and buy another one or two.

Also would you know what's the longest IO period that can be achieved with Liberty?

Thanks.

 

You've answered your own question.

 

I recently converted my loan from a fixed payment (which would have paid it off in around 6 years) to a standard 30 year term with Macquarie. Even though the repayments were a third of what we were paying, it took almost three months and was like doing a new loan application (including a val).

As soon as I can punt them and move to westpac or somewhere else I will.

 

That's just not worth it then if I'd need to sell.

Thanks Pete. What sort of debt reduction level do I need to achieve before I can refinance from liberty to another lender (on a 500k loan)?