Refinance trouble

Hi guys and girls

Hoping for a quick bit of Finacial advice. I've run into a spot of trouble with my loan setup.

I settled on a vacant 2-pack battle axe block in January, with the intent to subdivide, build on the front, sell, and then build on the back and hold. This hasn't changed and I'm about 2-4 weeks off getting sub division approval from council. Which puts me about 8 weeks off signing a construction contract and 10-12 weeks off BA

My loan is currently $245k, IO variable and locked for one year. My repayments are $973 p/m

My savings are $135k and were supposed to be offsetting this loan, due to no ones fault but my own except for maybe my brokers argghh! I wasn't aware locking the loan nullifies the offset arrangement for that period, I'm learning quickly. In the mean time I'm losing the difference in cashflow, about $130 p/w for the next 3months and then staggering back as the first few build stages get drawn. Roughly $3k in cashflow lost.

The savings can be offset inside other home loan accounts. However they are all on P&I so this wouldn't change my cashflow situ.

This seems like a pretty straight forward fix, if i can find a new loan at the same interest rate, and exit costs are under what I stand to save, why wouldn't I...?

I've been told by NAB direct they will cover economic break costs and match the interest rate. This would involve a new loan/application as would getting the current lender to remove the fixed term.

Can anyone shed some light on what I'm missing, any other complications that may arise. Obviously the new lender would need to run serviceability on the construction loan in tandem with the refinance, to insure I'm comparing apples

Cheers

 

Have you called up to see how much if anything the break cost is currently? If rates ahven't moved much on the loan you can just ask for a break for nil/minimal cost, without having to go through the whole refinance process.

Alternatively see if you can switch one of your existing loans to IO if the cash flow difference is a large issue.

 

Hi Corey

The other loans were forced into P&I as a condition of topping them up, I don't see that lender allowing it.

Not having to go through refinance process would be preferred. I don't think the rates have moved much, last month break costs were under $100. The broker I had write up the loan is on annual leave and I'm now forced to deal with her assistant, she has said the lender (Homeside) will require a new loan/app to break fixed term.

Have you seen lenders waive this policy in the past?

 

Definitely just break the loan then. No application required, you just need to sign a variation form - no assessment.

Tell the assistant to complete and send you through a 'Request to Modify NAB Homeplus Home Loan', section 2 needs to be completed. This can be found through the broker portal on NAB Broker. It takes all of two minutes to be completed.

Then tell the assistant I drink Canadian Club and she can have it sent to 128 Rundle St, Adelaide SA 5000 attn: Corey Batt.

 

And next time use a competent broker who understands your future plans and goals.

 

Thanks for that advice Corey. Just got off the phone with her and they're being told by the lender this one needs a whole new application, no variation available. Although they won't give a reason why. Not sure what to make of this, my intention at this stage is to move forward with refinancing. Some might question this decision over $130 p/w cash flow (which isn't really an issue) but considering I don't know what the future holds I think it's wise to reduce my land holding costs by 55%

Tell me about it, she came recommended through a colleague who develops, she asked all the right questions at the start, appeared as though she knew what she was doing. There has been 3 major issues a competent broker would have spotted in advance, I think its time for a change here.

 

Unless there's something else going on in the background, sounds like rubbish - we've put these through before without any issues.

Just called NAB Broker to confirm that this is indeed possible.

Before going down the refinance path - call 13 22 18 and ask them whether you can just complete the form and whether they can assist, so you don't have to deal with the broker/assistant any further.

Then ditch the broker once this is done so you don't have to deal with further issues.

 

So fixing part of an IO variable rate doesn't allow for any interest reduction even though the money is sitting in the account?

Was there a rate reduction on offer for you to do this?

 

Most of the majors' fixed rate loans don't allow offsets. I think there may be a few that do but generally not. Usually fixing the rate offers a bit of risk reduction in case of rate rise and offers some level of comfort for the borrower. At the moment most short term fixed rates are lower than variable.

 

Hey thanks for going out of your way to check, ill give this a try tomorrow

No the entire loan was fixed for one year. And yes the rate was different I think it was a touch lower to fix.

 

Hey Turbo, you really shouldn't need to be doing this. You're broker should be all over this (and should hopefully avoiding this situation from the start). I can't remember the last time I had to negotiate my own way through loans by myself!

Perhaps its time for a new broker (particularly if they are away and don't have an adequate way of dealing with issues in their absence... no offense to the assistant, but it sounds like they're over their head). Have a look around the forum, plenty of great brokers here who would probably be willing to have a look at you're current situation. I use Corey Batt & haven't looked back.

 

Hi Waldo

Thx for the reply, I'll contact a few other brokers if it turns out i need to refinance. Apparently the servicing is tight on the 2-stage loan so this may be why they require a new app, they should provide me with a reason why I can't use a variation, if this is the industry standard

Break costs are only $53 so unless they've gotten wind of something else particular to me, something isn't adding up. I hadn't though if using an interstate broker, I'm in qld..

 

Very unfortunate situation, but sounds like a small price for a big lesson.

Agree getting competent people to help you is key, but competent people are hard to come by.

 

I think the lesson starts with 'best laid plans...'

This really shouldn't have happened considering the background checks, professional references and due diligence invested in not only selecting the broker but SPECIFICALLY saying I wanted an offset and explaining that's where my cash saving will be sitting for the next 12 months, in fact this was initially the brokers idea

BUT as an investor knowing this loan product inside out should have been my first priority

 

Yea but the lesson is more, no one cares more about you than yourself. Broker screws you over, can just block your calls and move on to next client. Nothing to lose.

 

Canadian Club? You pleb haha

 

I'm but a man of the people.

 

It's a bit of the pot and the kettle...
A bottle of Jack doesn't go very far at my place

 

Just an update,

The variation was very easy took 48hrs cost $17 when I asked the broker why she couldn't do it, she had a valid excuse, but it really didn't explain why she wasn't knowledgable on the subject or why her solution was to set me up with a whole new loan, which I'm sure would have attracted new setup fees, etc

My predicament now is, I'm already pre-approved on the construction loan with the same lender and broker, i don't mind staying with the lender but would prefer to get out of bed with the broker, if only out of spite.

I'll give the lender a call to discuss.

 

Broker wanted to put you in a new loan so they could get the commission. Many times I have seen brokers refi a client to a new bank to get the upfront comm rather than doing something simple like a variation on an existing loan they didn't write which would be more beneficial to their client.. Some are chasing the quick buck rather than investing in relationships