Stop looking for the LOWEST interest rates

Discussion in 'Loans & Mortgage Brokers' started by Property Twins, 1st Sep, 2019.

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  1. Morgs

    Morgs Well-Known Member Business Member

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    A broker is able to tell you what the rate with a certain lender is going to be prior to an application.

    That is a good point. Pricing appetite can vary drastically on a monthly basis with the majors in particular.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yup - it changes pretty rapidly, and 2 months down the track it could well be out of date.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    LMI can be a great strategy but isn't always necessary - just depends on your goals, resources and how close you are to maxing out borrowing capacity.
     
  4. Tonibell

    Tonibell Well-Known Member

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    Sellers like to condition buyers to not be price sensitive. Always follow the money trail.
     
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  5. Property Twins

    Property Twins Buyers Agents & Finance Strategists Business Member

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    As already mentioned, interest rate pricing changes - sometimes week to week - so a lender may have a specific rate right now which may be attractive, another lender may have better pricing 3 months down the line for example. JUST looking at the rates is race to the bottom.

    For this reason, strategy and goals come first.

    Nothing wrong with minimising the interest - but you just have to weigh it up, especially if you are in the process of building your portfolio.

    Just make sure you are comparing apples with applies, and not apples with oranges (or carrot with oranges :rolleyes:)

    E.g. someone with $300k investment interest only lend with LMI vs $800k owner occupier principal & interest lend 80% LVR. Banks price on loan balance, LVR, LMI or no LMI, loan type - to name a few....so comparing an owner occupier principal & interest to investment interest only (and a lower loan amount) is pointless.

    So when you hear someone tell you they are paying a certain rate, and you wonder why your rate is not comparable, just make sure they are talking about the 'same' thing - otherwise its pointless comparison.
     
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  6. Property Twins

    Property Twins Buyers Agents & Finance Strategists Business Member

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    Depends on one's goal.

    Fine if all they want to do is save on the rate. They could choose to just have one or two properties.

    Leverage is what helps get exposure to markets.

    Its not to say people need to go to the lender of last resort.

    But no exposure to the market means no growth when the markets move or when the rent rises.

    You miss out on all the shots you don't take. ;)
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Im married to a former diplomat, she says always qsk the questions then shoot, not the other way round coz U loose the intel :)

    In the context of this thread, can you expand a little for me pls

    ta
    rolf
     
  8. sash

    sash Well-Known Member

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    On this I agree 100%...... lots of brokers with vested interests say this!

    A lot of them (not all) I would not use...they have no clue how to build clients to get pass 3...5..10...20 properties. Some are so lazy they are only interested in low hanging fruit...i.e. newbies who follow like sheep. The lure people with facebook sites with rubbish...the rubbish one reads is so annoying and so on sided......they claim to be have made a couple of million...left their day jobs...but the truth is they have simply traded swapped roles....to be mortgage brokers. I know a lot of them in Sydney...and most are not much chop. ;)

    If you have over $2m in loans...saving even 30 basis points is equivalent to 6k per annum! It looks like some need to do their maths again. The other point is a lot of brokers only offer the standard suit of products available via their aggregator....what about other products....
     
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  9. Lindsay_W

    Lindsay_W Well-Known Member

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    No - broker will negotiate the rate before any application or credit enquiry takes place.
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    bump for ToniBell

    ta

    rolf
     
  11. Dean Collins

    Dean Collins Well-Known Member

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    Agree.

    So much BS in here about not demanding lowest rate.
     
  12. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    All good, logically if an equivalent lower rate product is available to a borrower, a broker or banker will choose 'same if it is deemed suitable, there is no financial benefit for a responsible broker/banker to do otherwise................






    Suitability and equivalency relate to things like:






    · Has a an equal or greater security val where equity is an issue


    · Allows the same functionality - for eg client need demand a Global Limit Facility for active DR, where they can cycle Non deductible PI debt to deductible IO debt


    · Has an equivalent lender risk profile that the borrower understands ( eg Non ADI vs ADI, where the borrower will park significant funds if their own in a Redraw/offset)


    · Is in the same approximate borrowing capacity/sequence slot for a portfolio investor that wants to grow beyond ADI borrowing capacities. No point soaking up all Resimac/Firstmac/Pepper borrow cap, for low rate, and then being stuck because they wont take on more of your exposure, when one could have x times more exposure if properly structured from the start. Am I advising people to borrow HUGE, no... simply responding to client risk profile demands as you have put it, ASIC still requests responsible lending of Non ADIs, its just that non ADIs arent yet under the thumb of APRA.


    · and blah blah blah.


    ·




    Most of our clients are not in the place to have multiple lender options for an optimised outcome, to meet their REAL vs initially stated goals. The immediate implication suggests ahhhhhh well of course Rolf, those arent as a good a borrower as the average, and so they dont have access to mainstream with great low lender rates.






    NOPE……….




    A great example is a young couple I sat with yesterday. Very good money habits, moderate to balanced risk profile with a useful catalyst difference between husband and wife, up and coming good PAYG jobs, will at least double their current PAYG incomes by late 30s mid 40s




    Recently purchased a home with a good deposit, did some renos, have great equity for young folk, and looking to invest, for the long term outcome of possibly earlier or better retirement - or as I like to call it - to have options.




    A usual Banker and Product Fulifilment Brokers will ask:






    How much u wanna borrow


    Want variable or fixed or a mix


    What might you do with the property short to medium term ( mainly around fixed term question)


    And often there endeth the sermon








    Structure will often be crossed ( because its ONE application, instead of 2 and that’s easier for all)






    Here is a list of lenders that suit what your stated needs are




    · Low rate


    · Low fees


    · Capacity to buy an IP




    Typically, but not always, sorted by Comparison rate ( which is about as useful as comparing oranges and carrots because they are the same colour – and the complaining that the carrot cake didn’t work because we used orange pulp.




    Lender A B and C all have the offset you want, and they all pay us similar commission, so Broker X is ambivalent as to where it goes…………






    Below is what a structured and optimised approach looks like, and many brokers already do this, and one day it may be a Best Interest, Gold Standard.






    Our Standard Guided Discovery Process:






    · Revealed that the clients had an understanding that COST does not equal value.


    · Wanted to build a portfolio of IPs to give them options 25 years down the track


    · Had a risk profile AND resources that was also and additionally suited to equities investments with low gearing ( many are not comfy with that at all)


    · Were aware that Property Investment is as much about availability of finance as it is as much about Asset Selection


    · They learnt about simple Debt Shuffling to raise equity for IP deposits rather than spending tax paid cash for tax effectiveness


    · They learnt about Active debt recycling and that it can be done in a managed or on DIY basis, and can result in an effective rate of quite less than 2.5 % for their home mortgage


    · The learnt that many lenders are NOT suitable for active debt recycling since they have neither a Global Limit, nor the capacity to split loans without a loan application or variation


    · They decided that a Global Limit style product was most suitable for their actual needs once they understood how this could benefit their specific recently learnt needs and goals


    · They were advised to seek specific tax and financial planning advise


    · Rate didn’t come into the equation, but as it turns out 3.04 to 3.19 PI is likely the outcome.












    An anecdote, of real life mixed enquiries we have had over 20 years, with clients focussed on rate………………..









    I want a sub 3.4 IO variable IP rate, my friend got this rate, and I’m sure I can get that rate or better as well.




    I understand Mrs Client. We had a few approved last week at 3.39 IO for Ips, as you would know, one of those is your friend who referred you to us.




    But ………..your credit score is 256 and your husband is at 523, as you know from the report you provided.





    Further




    · Your Base Loan to Value ratio is 92 %, on the best of 3 upfront valuations.


    · The Loan security is a rooming house in a regional Location


    · The security property is cross collateralised against 2 others, one in Moranbah and another in Gladstone, that were bought at the peak of the market, were financed at 105 % lvr and are now half their purchase value


    · The beneficial owners of the security are a Hybrid Discretionary trust, with a personal trustee, which is your and your husbands half, another 25 % being owned by your non resident, self employed brother in law who lives in country X, and the other 25 % owned by a JV investor who is being detained on her majesty's pleasure for an extended period.


    · You are self employed and your ABN is 9 mths old, and you have no previous history of running a bakery, since your previous PAYG job was as a croupier.


    · You have told us your business income is largely cash based, and your BAS shows your business has negative cashflow on the books.


    · You have made 6 Credit card applications to seek the frequent flyer points and 0 interest balance transfers and thence closed the cards in the last 2 years.


    · You need the cash out to pay ATO debts


    · Your husband has 2 unpaid utility defaults of more than $ 1000


    · The loan you would like to refinance has 2 late repayments in the last 6 mths, and is one mth in arrears right now.


    · Your flour supplier has an unpaid court judgement against your business because you felt they were a large company and could wait 6 mths for payment.


    · The same loan you are applying for with us, has been placed with 4 other banks in the same week, because you felt it was a good idea to shop around .....something you read about on an internet forum, so as to obtain the best rate.


    · You want to add a granny flat (as well as the cash out for the ATO) as an owner builder, and you have told us you can get cheap cladding from some provider who has this available second hand from some large projects, where they have removed same from large unit blocks– hardly used.


    · And the stuff continues but this is boring already !








    Chasing lowest rate over what works for now and the future is like buying a pair of shoes that are half a size too small because they are on a 50 % off sale and your size isnt available on sale.............. you can wear them for a small while, but they will hurt.




    I don’t believe this to be the right approach for many clients, indeed most clients if one spares the time and has the courage to - peel the onion, will reveal their real life goals. If all one needs is a mum and dad loan, where there they wont ever invest, and its their forever home, rate is very important. For all others rate is tertiary at best.






    Loans aint loans





    ta




    rolf


     
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  13. Tonibell

    Tonibell Well-Known Member

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    As an industry - mortgage brokers are in sales and paid by the bank.

    Typically you would not expect them to do a lot of additional work for little (or negative) pay.

    Of course there are exceptions in every industry (very happy for my broker for example).


    or buying the latest shoes on high street rather than last year's range at DFO.
     
  14. Gen-Y

    Gen-Y Well-Known Member

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    It really depends on which camp you fall into. :cool:
    If it is just your normal run of the mill property portfolio for the average Joe.
    I don't see why not chase after the best rates available on the market.
    If you are the professional property investor - maybe the strategy is a mixture of both once you have hit the limit of normal financial route.
     
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  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    for an equivalent product, that makes good sense


    ta
    rolf
     
  16. sash

    sash Well-Known Member

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    100%...... some brokers are quite lazy...quite a few brokers are very transaction focused they only want to get the client into the quickest loan which pays a a decent upfront and trail.

    The good ones listen to what the customers want.

    Some don't even bother with Pepper or Liberty ..Latrobe ...when they should if it suits the lcient. I think they a bit less on upfront and have fees.

    Lets face it some of brokers have only started recently...and they would not be at the top their game...despite all the facing adverting of testimonials....
     
  17. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    La Trobe
    0.55% uf
    0.275% duf

    Pepper Money
    0.66% - 0.803% uf
    0.165 - 0.22% duf

    LIBERTY -
    <80% LVR - .77% & >80% LVR - .66% uf
    0.22% duf


    Obviously varies a little between aggs, but its a good guide to avoid confusion


    ta

    rolf
     
    Lindsay_W likes this.

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