Hi all!
Just wanted to share with everyone that today, after 8 months, I've finally managed to get myself refinanced in a position to move forward and start on the road to purchase our next investment property. I currently have an inner city Brisbane apartment and our principle place of residence (PPOR) in Brookwater, Queensland.
I learnt from a Bill Zheng seminar that a finance strategy can override a property strategy. Investors typically spend 90% of their time on looking for their next investment property, and 10% on getting their finance right. [1] So I decided to spend a good deal of energy and time getting the finance side right!
My previous situation:
* Both properties were with ANZ, cross collaterised. ANZ were only going to go to a max of 80% lend across both properties.
* Apartment was interest only, but PPOR was P&I because my first mortgage broker, in 2005, forgot to check a box on the application form, or I forgot to question it.
* LVR was 75%, so I didn't have a lot of room to move.
My goals were:
* get the highest possible lend
* interest only
* have a reasonable interest rate
* be able to get valuations done every 12 months
* don't mind paying lenders' mortgage insurance.
The hurdles were:
* Low and unrealistic/inaccurate valuations
* Financiers unwilling to lend above 90% for both properties combined
* Financiers unwilling to lend above 80% for an inner city apartment
* Financiers willing to lend 90%, but at 9.2% interest rate
Realistic Valuations
The first challenge was getting a realistic valuation on our PPOR. The first mortgage broker I used did a great job in getting the loan split up into fixed and variable portions, another split for investment purposes and a final split for personal purposes, but couldn't get the valuation high enough with 3 different lenders each giving unrealistic valuations with poor comparative sales. (By the way, splitting a loan up into bits is an easy way to tarnish your credit record, because the bank may query your credit file for each split! If you have too many credit queries, then some banks may automatically reject your application on the first go.)
Biased Advice, max lend of 85%
At this point, I decided to approach a finance manager, internal to the NAB. They offered to take both properties away from ANZ (x-colling them of course), originally promising a 90% lend now, and later, 95% (after I had been a committed customer of the NAB for a period of time). Their valuation on our PPOR was $35k more than the 3 previous banks, and $20k more on our apartment, so I thought that I was getting a good deal, but at the last moment, the credit manager got cold feet and would only lend 85%.
I walked away and went to Investor's Direct to get some *unbiased* advice. Naturally someone who works for a bank thinks their products are the best thing since sliced bread, and would be committing a sin by suggesting anyone else's products!
Hiving our house away from ANZ
After talking with Investor's Direct, they managed to get me a lend with Macquarie for 90% LVR on our house alone, which was great, but Macquarie wouldn't touch our apartment for anything above 70% LVR. I disagreed, and gave Macquarie only our PPOR, which gave us a line of credit of $55k. Now both properties were completely separate securities.
Trouble getting a high lend on an inner city apartment
Investor's Direct suggested that we look at a lender who didn't charge LMI, as the two big LMI providers - Genworth and PMI - wouldn't lend above 80% in inner Brisbane, and both would be aware of my application for finance.
I've posted to this forum before about this problem, see:
http://www.somersoft.com/forums/showthread.php?t=32336
We found that lenders who don't charge LMI had relatively high interest rates (9% for a full doc loan) and astronomical break fees if you refinanced within 4 or 5 years. I had almost resigned to the fact that I had to pay an extra $70/week at 9% interest just to get a decent line of credit against my apartment.
Research Pays Off
I did some independent research and found that ANZ use PMI as their LMI provider, and the PMI location guide suggested that postcode 4000, they would lend 90% < $500k and 95% on application.
[In actual fact, ANZ use their own LMI provider now...: "ANZ Lenders Mortgage Insurance Pty Ltd", or some such. I don't know how in-bed-with-PMI it is...]
I rang the ANZ mortgage inquiry line and asked how much of a lend I could get with a separate line of credit. The answer was: "80% is the maximum we'll lend, which gives you about $60k in a line of credit.". After hanging up, an idea just popped into my head - I already had an offset account with my existing ANZ loan... what about just topping up the offset account instead of getting a full-blown, separate line of credit? I rang the ANZ mortgage line again, and got the answer I was looking for:
"Yep, we can do up to 90%, possibly 95% for you. One of our mortgage specialists will be in contact with you tomorrow."
Woo-hoo!
After about 2 weeks and a valuation, I managed to get our loan topped up all the way to 95%, which gives me a buffer of about $120k on our apartment alone!
This gives me a deposit + costs for our next place in Brisbane (I really don't care where I buy, as long as it's in a growth suburb, where the property is either near new (depreciation benefits) or needs a renovation (to add equity)), plus a buffer for any short fall for the next couple of years.
I've been told that the first couple of properties are the hardest to get, then the equity will start to kick in. We'll see!
Lessons learnt:
* Patience! You can't get your strategy right the first time, so keep trying until everything falls into place.
* Don't accept anything second rate. If it's not the best, then it's not the best...
* Don't over analyse either. I'm sure I've missed countless opportunities out there because I was trying to perfect my finance strategy.
* Ultimately, you're responsible for you. Nobody else will care as much as you do.
* Get unbiased advice from a decent mortgage broker.
* Don't split your loan up into many pieces.
* Know your suburb back to front, so when you get a low(er) valuation, you know it can be bettered.
* Valuers who don't know your suburb are pretty much going to be useless. You'll know that they don't know the suburb well if they ask you "So, on what page of Brisbane's Refidex is your suburb again?"
Hope you've enjoyed reading this saga. I hope someone finds motivation out there to really push the finance envelope after reading this.
Cheers,
-- MJ.
[1] Not sure if these percentages are completely correct, but you get my drift...
Just wanted to share with everyone that today, after 8 months, I've finally managed to get myself refinanced in a position to move forward and start on the road to purchase our next investment property. I currently have an inner city Brisbane apartment and our principle place of residence (PPOR) in Brookwater, Queensland.
I learnt from a Bill Zheng seminar that a finance strategy can override a property strategy. Investors typically spend 90% of their time on looking for their next investment property, and 10% on getting their finance right. [1] So I decided to spend a good deal of energy and time getting the finance side right!
My previous situation:
* Both properties were with ANZ, cross collaterised. ANZ were only going to go to a max of 80% lend across both properties.
* Apartment was interest only, but PPOR was P&I because my first mortgage broker, in 2005, forgot to check a box on the application form, or I forgot to question it.
* LVR was 75%, so I didn't have a lot of room to move.
My goals were:
* get the highest possible lend
* interest only
* have a reasonable interest rate
* be able to get valuations done every 12 months
* don't mind paying lenders' mortgage insurance.
The hurdles were:
* Low and unrealistic/inaccurate valuations
* Financiers unwilling to lend above 90% for both properties combined
* Financiers unwilling to lend above 80% for an inner city apartment
* Financiers willing to lend 90%, but at 9.2% interest rate
Realistic Valuations
The first challenge was getting a realistic valuation on our PPOR. The first mortgage broker I used did a great job in getting the loan split up into fixed and variable portions, another split for investment purposes and a final split for personal purposes, but couldn't get the valuation high enough with 3 different lenders each giving unrealistic valuations with poor comparative sales. (By the way, splitting a loan up into bits is an easy way to tarnish your credit record, because the bank may query your credit file for each split! If you have too many credit queries, then some banks may automatically reject your application on the first go.)
Biased Advice, max lend of 85%
At this point, I decided to approach a finance manager, internal to the NAB. They offered to take both properties away from ANZ (x-colling them of course), originally promising a 90% lend now, and later, 95% (after I had been a committed customer of the NAB for a period of time). Their valuation on our PPOR was $35k more than the 3 previous banks, and $20k more on our apartment, so I thought that I was getting a good deal, but at the last moment, the credit manager got cold feet and would only lend 85%.
I walked away and went to Investor's Direct to get some *unbiased* advice.
Naturally someone who works for a bank thinks their products are the best thing since sliced bread, and would be committing a sin by suggesting anyone else's products! Hiving our house away from ANZ
After talking with Investor's Direct, they managed to get me a lend with Macquarie for 90% LVR on our house alone, which was great, but Macquarie wouldn't touch our apartment for anything above 70% LVR. I disagreed, and gave Macquarie only our PPOR, which gave us a line of credit of $55k. Now both properties were completely separate securities.
Trouble getting a high lend on an inner city apartment
Investor's Direct suggested that we look at a lender who didn't charge LMI, as the two big LMI providers - Genworth and PMI - wouldn't lend above 80% in inner Brisbane, and both would be aware of my application for finance.
I've posted to this forum before about this problem, see:
http://www.somersoft.com/forums/showthread.php?t=32336
We found that lenders who don't charge LMI had relatively high interest rates (9% for a full doc loan) and astronomical break fees if you refinanced within 4 or 5 years. I had almost resigned to the fact that I had to pay an extra $70/week at 9% interest just to get a decent line of credit against my apartment.
Research Pays Off
I did some independent research and found that ANZ use PMI as their LMI provider, and the PMI location guide suggested that postcode 4000, they would lend 90% < $500k and 95% on application.
[In actual fact, ANZ use their own LMI provider now...: "ANZ Lenders Mortgage Insurance Pty Ltd", or some such. I don't know how in-bed-with-PMI it is...]
I rang the ANZ mortgage inquiry line and asked how much of a lend I could get with a separate line of credit. The answer was: "80% is the maximum we'll lend, which gives you about $60k in a line of credit.". After hanging up, an idea just popped into my head - I already had an offset account with my existing ANZ loan... what about just topping up the offset account instead of getting a full-blown, separate line of credit? I rang the ANZ mortgage line again, and got the answer I was looking for:
"Yep, we can do up to 90%, possibly 95% for you. One of our mortgage specialists will be in contact with you tomorrow."
Woo-hoo!
After about 2 weeks and a valuation, I managed to get our loan topped up all the way to 95%, which gives me a buffer of about $120k on our apartment alone!
This gives me a deposit + costs for our next place in Brisbane (I really don't care where I buy, as long as it's in a growth suburb, where the property is either near new (depreciation benefits) or needs a renovation (to add equity)), plus a buffer for any short fall for the next couple of years.
I've been told that the first couple of properties are the hardest to get, then the equity will start to kick in. We'll see!
Lessons learnt:
* Patience! You can't get your strategy right the first time, so keep trying until everything falls into place.
* Don't accept anything second rate. If it's not the best, then it's not the best...
* Don't over analyse either. I'm sure I've missed countless opportunities out there because I was trying to perfect my finance strategy.
* Ultimately, you're responsible for you. Nobody else will care as much as you do.
* Get unbiased advice from a decent mortgage broker.
* Don't split your loan up into many pieces.
* Know your suburb back to front, so when you get a low(er) valuation, you know it can be bettered.
* Valuers who don't know your suburb are pretty much going to be useless. You'll know that they don't know the suburb well if they ask you "So, on what page of Brisbane's Refidex is your suburb again?"
Hope you've enjoyed reading this saga. I hope someone finds motivation out there to really push the finance envelope after reading this.
Cheers,
-- MJ.
[1] Not sure if these percentages are completely correct, but you get my drift...
