Repay offset to increase serviceability?

Discussion in 'Loans & Mortgage Brokers' started by Frenchie, 19th Oct, 2020.

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  1. Frenchie

    Frenchie Well-Known Member

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    Hi

    I recently asked Macquarie about how much I could borrow for an IP and was a bit disappointed.

    I'm planning to buy a house in SEQ for around ~<600k. Rents about 500-530pw

    I have a PPOR worth ~700k and 525k IO loan on it, fully offset. Income around 190k pa. Investments elsewhere that I don't plan to touch.
    I was planning to borrow 80% but I was told not possible. Suggested reducing Lvr or paying off offset loan would make a difference. No dependents or other loans.

    I'd rather keep my current loan as is - I plan to move out at some point in the next 3-5 years (and keep the place as IP as the yield is very good).

    Is the serviceability very conservative at Macquarie or have I hit a limit and should review my plans?

    Thanks
     
    Frenchie, 19th Oct, 2020
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  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I'd say you're probably getting close to your limits with mainstream lenders. Macquarie aren't so conservative that other first and second tier lenders are definitively better. I'd go so far as to say that Macquarie are actually better than most and have a number of features in their policies that can be made to work to your advantage. They're generally not the best servicing lender, but you could do a lot worse.

    When assessing existing loans, funds in an offset account are ignored and it's the limit of the loan that counts. Hence if you try to increase serviceability by reducing debt, one way might be to sacrifice cash in an offset account to reduce the limit on an existing loan. Probably not a good strategy for many investors.
     
    Peter_Tersteeg, 19th Oct, 2020
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Macq has an underlying DTI issue around LVR, so your borrow cap may be ok, but if the DTI is above 6 you get strangled on LVR.................hence you can probs afford the 80 % lend ......but


    There are other lenders that dont have these risk mitigations at this time

    ta
    rolf
     
    Rolf Latham, 19th Oct, 2020
    #3
  4. Frenchie

    Frenchie Well-Known Member

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    Thanks for the advice, I can easily reduce lvr on my PPOR or new IP but I'm trying to minimise that
    I thought my debt to income wouldn't be too bad given my income and proposed rental income of 25k pa (gross) / 18k net - I would be at $1m debt.
     
    Frenchie, 19th Oct, 2020
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  5. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Keep in mind that the LVR on an existing property doesn't influence what you can do for a new purchase. Reducing debt will give you some borrowing power and this reduces your LVR as a side effect.

    DTI is like a restriction on how flexible the lender on how they apply risk factors. Some lenders will have a maximum DTI, but it's not the primary mechanism limiting your borrowing power.
     
    Peter_Tersteeg, 19th Oct, 2020
    #5