Which lender is best for a first IP

My son has been to a mortgage broker who recommended Resimac IO as the only lender. He then went to CBA and they offered much more money and P+I at 3.80% and then Defence Bank, who offered a bit more money again. Which of any lender out there is best to be able to pull equity in a few years time? and which has the most generous serviceability calculator for P +I ? Thanks

 

There is no hard & fast rule around who is the best lender. It is more dependent on what your requirements are both for the short and long term and how the specific lenders / products will map to those requirements.

Generally speaking the strongest servicing will be between the majors, but in some instances it is not the case.

 

Questions to consider.
Is it just about getting the max loan?
Plan to buy more in the future?
Features like offset, redraw?

 

I'm guessing that Resimac P&I probably has the most generous servicing calculator of those mentioned. There are lenders that are significantly more generous, but that may not be appropriate at this point in time.

At this point the CBA's servicing model is quite conservative for investors. Speaking with the VIC state manager yesterday, I'm not relay expecting this to change any time soon. They do have competitive rates for 90% P&I though.

There's no 'best' lender. All have strengths and weaknesses. A better understanding of the scenario and circumstances is needed for any recommendation.

 

Yes to all three with a good low rate for P+I I guess

 

thanks! I think $580K should be his max PP, he really just needs enough to buy a quality property. I'll ask the broker to check P + I with Resimac to see what they come up with. If they won't give him the amount he needs should he go directly with CBA or go through the broker for CBA or doesn't it make a difference to the amount they will lend and the deal they will offer him?

 

Through a broker or the retail channel, the amount you can borrow should be the same. Assessment policy doesn't change from one to another.

I don't know his circumstances so I can't suggest which is the more suitable lender. Given the policies both lenders use, I'd be very surprised if the CBA would fund more for a second purchase.

In most cases, I probably wouldn't recommend either lender for the first IP purchase.

 

If the broker has invested time, and you have a good relationship with them, go with the broker.

Broker's aren't remunerated for just checking borrowing capacity.

There is much more that goes on the back end.

Bank staff may move on, but the broker will be around to check in over years to come.

 

He is single, works in defence, lives on base and earns $70K pa, has no debt at all, no credit card and has $70K saved, no other assets. Which lender would you suggest?

 

Yes, I understand. We have a good relationship but based on their recommendation for Resimac IO, it won't be enough money.

 

As a general rule, will lenders allow a greater borrowing capacity if you opt to pay P+I rather than IO?

 

With a deposit of $70k, the maximum purchase price is going to be limited to a bit over $400k. That covers a 10% deposit, purchase costs (stamp duty) and mortgage insurance. The loan amount would be $360,000. The exact amounts vary from state to state (stamp duty is different), $400k is at the lower end, the max would be a purchase price of about $450k.

Most lenders will only lend to 90% for investment purposes. servicing doesn't appear to be a problem at this point. The challenge for the next purchase will likely also be raising a deposit as a 90% loan is essentially a negative equity position when trying to release equity for the next property.

Given these constraints, the CBA would actually be on my short list because they have a competitive product for 90% investment loans. If the intention is to prepare for the next investment, the ability to save money is going to be critical, so cash flow is probably more important than borrowing capacity at this point in time.

Serviceability might be more important for the next purchase. A more comprehensive assessment would be needed at that point to figure out the most appropriate lender at that time.

 

Thanks for this Peter He will qualify for the first home owners assistance scheme and be exempt from paying stamp duty as he is in defence and is on the NSW electoral roll.

 

Yes, he doesn't have to live in it

 

Are you sure that the first home owners assistance scheme is available for an investment property? There may be some defence related exemption that I'm not aware of.

If he doesn't have to pay stamp duty, $70k available would translate to a purchase price of $575k - $600k.

 

Yes, we both rang OSR in NSW to confirm and it's stated on their website. It was introduced in 2017

 

To be honest it should be your son asking questions here. Information filtered through someone else changes it.

 

Perhaps. Even though we're both on the same page and he'll read this post so we can discuss the comments, I'll encourage him to become a member and seek future info for himself

 

yes of course, thanks. I always opted for IO for my loans because I wanted to maximise borrowing capacity for subsequent purchases.