Stop looking for the LOWEST interest rates

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

 

bump for ToniBell

ta

rolf

 

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

 

for an equivalent product, that makes good sense


ta
rolf

 

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