Should I be concerned my bank is going to shaft me

Discussion in 'Property Finance' started by Keentolearn77, 9th Jan, 2019.

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  1. Keentolearn77

    Keentolearn77 Well-Known Member

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    Location:
    Melbourne
    Now that I have your attention.

    Quick backstory.

    Taking existing loan to another bank who have agreed to take on the loan. which is equal to 50% of the unimproved land value / title.
    I am undertaking a 4 townhouse development and funding 70% of the development costs. This bank has agreed to fund / construction loan for the remaining 30% required for the build.

    NOW - the bank have requested I pay out the existing loan with the funds I was to use for 70% of the development. That I then pay for the 1st 20% odd of construction and the bank will pay / loan draw down for the remaining 70-80% of construction.

    Should my alarm bells be ringing.
    The bank is saying it minimises their risk.

    My thoughts.
    - what if the bank back out of the construction loan / construction funds at the 11th hr after I have paid out the original loan (then I'm stuffed).(todays apra conditions, I'll be crushed).
    - The bank claiming their risk is reduced if I suddenly decide to blow all my long held personal funds for construction (even though they could sell the vacant land (as noted in 1st sentence) for dble the price of the existing loan they were going to let me rollover to them)...
    - With myself paying the builder directly for the 1st 70% of construction was to eliminate bank delays and hoop jumping, which I now fear...

    I'm asking the bank for a lot in writing to allay my fears,

    any thoughts or other considerations please
     
  2. Simon Moore

    Simon Moore Residential & Commercial Mortgage Broker Business Member

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    This is normal, the bank wants to control all the funds to complete the construction, if they leave you holding $100k for the final payment and you blow it down at the casino, now they are stuck with an 80% complete development they need to sell.

    As for your other points, you would need to check your contract to find under which circumstances the bank can back out of the loan.
     
  3. Stoffo

    Stoffo Well-Known Member

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    If you hold any form of bank account then this has already occurred :p
    Likely many times over o_O
     
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  4. Keentolearn77

    Keentolearn77 Well-Known Member

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    Melbourne
    Gday Simon, thanks for reply, So the bank I guess would'nt factor the years of blood sweat tears we have undertaken to get to this point, and our history of having left these funds untouched ready for this development. That the combined total LVR at completion will be approx 30%.
    I'm hoping my bank would accept if we place 99.9% of the funds into the existing loan, that can be redrawn for the specific purpose of paying the builders stages of build...
    It would give me comfort to sleep at night.... I feel were the ones left massively exposed, and at greatest risk :(
     
  5. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Nope, this is irrelevant to the bank really.
     
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  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Realistically, your funds wouldn't pay down the loan until settlement, so if settlement of the new loan doesn't happen, neither does the repayment of the existing loan.