Servicing

Discussion in 'Loans & Mortgage Brokers' started by gach2, 12th Nov, 2019.

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  1. gach2

    gach2 Well-Known Member

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    Im just trying to see how servicing is calculated
    Actually more interested to know how my current property is affecting my servicing

    Figures
    250k value
    200k loan (80%)
    300pw rent
    Lets assume 3.5% interest rate

    What i believe (im not at all that knowledge hence the questions and off course i believe i could be wrong)

    Servicing is calculate by many lenders at interest rate + 2.5% and in some cases a floor rate. In this example it would be 6% (3.5+2.5) unless the floor rate is higher. I believe this would be on the loan amount (in this case 200k)

    Ive also been told yield is kept to 6% by some lenders. Would this be of the property value ([email protected]) or loan amount ([email protected])?

    Other thing i know in the formula is most lenders only accept 80% of rent. Is this calculated on actual rent or after the 6% cap (making the cap effectively 4.8%)

    I did read a thread before where it mentioned properties had to be yielding 9%+ to be not affecting servicing (when servicing rates were 7.5%). Now that rates have dropped would 7.5% (on loan)/6% (on loan) not take a dent on servicing

    If theres other factors please share

    Thanks
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Don't forget living expenses and now property holding expenses
     
  3. gach2

    gach2 Well-Known Member

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    Im assuming living expenses are not affected whether i hold the property or not? (unless it involves increasing for tax returns) - Maybe i should reworded OP and mentioned would keeping the property increase/decrease my serviceability?

    Not too sure what you meant by property holding expenses
     
  4. Lindsay_W

    Lindsay_W Well-Known Member

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    Property costs - such as rates, management fees, maintenance etc. = costs to hold the property.
     
    Terry_w likes this.
  5. Lindsay_W

    Lindsay_W Well-Known Member

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    Not sure what you mean by this, as you mentioned above rental yield is capped at 6% so if a property is yielding 9% the extra 3% can't be used for servicing purposes anyway.

    Why don't you just engage a broker to do this for you? It's highly likely you'll get it wrong doing it yourself.
     

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