St George business loan term - impact on serviceability of other loans?

Hi PC,

I'm looking to refinance an existing 3yr IO business loan of about $600k that is falling due in a few months. St George (current lender) have offered the following P&I options:

1. 5 years, 3.9%
2. 10 years, 4.0%
3. 22 years, 4.5%

I'm trying to work out if paying an extra 0.5% (option 2 vs option 3) in interest will increase my borrowing capacity?

• SGB said that regardless of the term selected, P&I repayments will be over a notional 22 year term.
• Say I go with option 2, when a lender calculates my servicing ability for other loans, will they use the 22 year term or 10 year term?

Thanks everyone!

 

Generally the longer the term the better for serviceability as the repayments will be less

 

The bank said the repayment will be $3800 regardless of loan term as they use the 22 year to calculate monthly repayments.

 

But will the next lender take that when assessing serviceability for the next loan?

 

There's probably a few other things that need to be clarified before making this decision. Are the loan terms disclosed the amatorisation period or is it the review period? Is that loan expected to be paid off by the end of the term or do they want another exit strategy?

Commercial loans can be very different from residential loans and quite often it's not about the best rate. Often having conditions that suit your circumstances is far more important than rates.

 

22 year is the amortization period.
Options 1-3 are review periods.

I believe the t&c are the same in all options but I will check.

The exit strategy at end of 10 years would be to sell to fund retirement (if not sold before then).

 

If the term is actually the same (22 years) and you can prove it in writing then the lower rate would be best for servicing (with most lenders) as they would calculate the commitment as:

* the loan limit / balance.
* @ actual rate paid + 2.5% pa.
* amortised over 22 years.

 

Thanks Marty. This is good information. I will ask to get the amortisation period in writing as part of the loan offer.

 

Nothing yet.

Bank says they won't put the 22 year amortisation period in the standard loan terms (no variation). They will only state the monthly repayment which infers the 22 year amortisation.

 

Very strange