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

Discussion in 'Loans & Mortgage Brokers' started by ZenSapphire, 18th Nov, 2019.

Join Australia's most dynamic and respected property investment community
  1. ZenSapphire

    ZenSapphire Well-Known Member

    Joined:
    18th Oct, 2019
    Posts:
    57
    Location:
    Sydney
    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!
     
  2. Terry_w

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

    Joined:
    9th Jun, 2006
    Posts:
    28,023
    Location:
    Australia wide
    Generally the longer the term the better for serviceability as the repayments will be less
     
  3. ZenSapphire

    ZenSapphire Well-Known Member

    Joined:
    18th Oct, 2019
    Posts:
    57
    Location:
    Sydney
    The bank said the repayment will be $3800 regardless of loan term as they use the 22 year to calculate monthly repayments.
     
  4. Terry_w

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

    Joined:
    9th Jun, 2006
    Posts:
    28,023
    Location:
    Australia wide
    But will the next lender take that when assessing serviceability for the next loan?
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    5,856
    Location:
    Melbourne, Nationwide
    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.
     
  6. ZenSapphire

    ZenSapphire Well-Known Member

    Joined:
    18th Oct, 2019
    Posts:
    57
    Location:
    Sydney
    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).
     
  7. Marty McDonald

    Marty McDonald Mortgage broker Business Member

    Joined:
    22nd Jun, 2015
    Posts:
    650
    Location:
    Sydney North Shore and Norther beaches
    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.
     
  8. ZenSapphire

    ZenSapphire Well-Known Member

    Joined:
    18th Oct, 2019
    Posts:
    57
    Location:
    Sydney
    Thanks Marty. This is good information. I will ask to get the amortisation period in writing as part of the loan offer.
     
  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    15th Aug, 2005
    Posts:
    6,827
    Location:
    Gold Coast
    what does your broker say ?

    ta
    rolf
     
  10. ZenSapphire

    ZenSapphire Well-Known Member

    Joined:
    18th Oct, 2019
    Posts:
    57
    Location:
    Sydney
    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.
     
  11. Terry_w

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

    Joined:
    9th Jun, 2006
    Posts:
    28,023
    Location:
    Australia wide