Calculating changes to your borrowing power
- Thread starter Redom
- Start date
Interesting thread Redom , thanks.
Q. RE: credit cards. One positive use was to put all expenses on the CC, leave funds in offset and transfer at the end of the month while paying down ppor debt.
When one gets to a point where ppor is 100% offset and savings accumulate - is it beneficial to cut up the CC? Or would you only do this when you hit a servicibility wall and chopping up the cards will actually get you over the line?
Q. RE: credit cards. One positive use was to put all expenses on the CC, leave funds in offset and transfer at the end of the month while paying down ppor debt.
When one gets to a point where ppor is 100% offset and savings accumulate - is it beneficial to cut up the CC? Or would you only do this when you hit a servicibility wall and chopping up the cards will actually get you over the line?
Personally, id keep 1 CC to manage cash flow and pay for transactions. If it comes down to extracting the last dollar out for servicing, it is one option that can be taken to increase borrowing power. There'll likely be multiple options to progress though (e.g some lenders wont include the credit card if repayment history is shown).
Cheers,
Redom
I am wondering, if rental yield doesn't add much to borrowing power, how do others on a moderate 70-80k income manage to get such a large portfolio of 10+ properties?
It's not about 'adding' to serviceability, but reduce the rate of eroding maximum borrowing capacity. Combine this with a carefully structured finance setup and you can build a multi mil portfolio with ease.
This may sound odd but a question for the brokers on here. Do you deal much with other mortgage brokers as clients? The reason I ask is because standard lending and investment lending seem to be worlds apart.
I imagine a large number of brokers would not be very proficient in investment lending and if they wanted to build a portfolio based on what they think they know may land themselves in trouble.
Most brokers don't have substantial investment property holdings.
They wouldn't go to a specialist either because they think they're doing a great job. They don't know what they don't know. I've been to plenty of professional events where I was speaking a different language to the rest of the room.
They wouldn't go to a specialist either because they think they're doing a great job. They don't know what they don't know. I've been to plenty of professional events where I was speaking a different language to the rest of the room.
99.9999999999999999999999999999999999999999% of brokers would write their own loans, no need for them to go elsewhere for the most part. Especially when they're getting paid to write their own business.
Peter knocks the nail on the head with the latter argument, they don't know what they don't know and so wouldn't think to go elsewhere.
Haha this is gold. Well said Peter.
Most brokers would write their own loans i'm sure. You'd need an absolute massive portfolio to run a business relying on this though.
Adding one more general 'back of the envelope' and timely rule, what happens to your borrowing power when the interest rate falls by 0.25%?
Generally a rate cut means borrowers increase their borrowing power as either:
(a) banks 'assessment' rates fall by 0.25%.
(b) existing debt repayments fall.
Using (a) , some lenders are feeding through the rate cut into their servicing calculator. For an average $400,000 PPOR mortgage, the assessed interest expense will decrease by around $60-$70 per month, so you'd be looking at around a $10,000 increase in your borrowing power as a result of a rate cut.
For those with large portfolios, this will be greater as the effects of (b) will make a larger difference.
As touched on earlier in this thread, there'll be slight differences between investment and PPOR debt too.
Also note that with APRA's most recent letter and a stated 'floor' of 7%, not all lenders will feed through the rate cut in their servicing calculator.
Cheers,
Redom
Generally a rate cut means borrowers increase their borrowing power as either:
(a) banks 'assessment' rates fall by 0.25%.
(b) existing debt repayments fall.
Using (a) , some lenders are feeding through the rate cut into their servicing calculator. For an average $400,000 PPOR mortgage, the assessed interest expense will decrease by around $60-$70 per month, so you'd be looking at around a $10,000 increase in your borrowing power as a result of a rate cut.
For those with large portfolios, this will be greater as the effects of (b) will make a larger difference.
As touched on earlier in this thread, there'll be slight differences between investment and PPOR debt too.
Also note that with APRA's most recent letter and a stated 'floor' of 7%, not all lenders will feed through the rate cut in their servicing calculator.
Cheers,
Redom
Yeah, I have four worshipers in my household
They are all under eight so if they still worship me in 15 years we have done a good job.
Yeah, I have four worshipers in my household
They are all under eight so if they still worship me in 15 years we have done a good job.
I see they've already caused you to pull your hair out
I see they've already caused you to pull your hair out
Nah that was a gene passed on from my mother, plus its practicle.
She was bald too?
Nope, but she is bold.
If your Mum has thinning hair and your her son then whip out the clippers quick smart.
interesting way to increase serviceability
Interesting one I found out from my broker...
Banks dock you with a nominal rent expense of $700 per mth even if you still live at home from your folks.
However if you are from certain ethnic background where living at home well past your 20s is the norm (Asian, Greek, Italian)... you could prove that you still live at home and get it waivered!!
I assume policies vary from lender to lender but an interesting one to explore nevertheless
Interesting one I found out from my broker...
Banks dock you with a nominal rent expense of $700 per mth even if you still live at home from your folks.
However if you are from certain ethnic background where living at home well past your 20s is the norm (Asian, Greek, Italian)... you could prove that you still live at home and get it waivered!!
I assume policies vary from lender to lender but an interesting one to explore nevertheless
Depends on the lender - a simple letter from the folks usually mitigates this.
Cheers
Jamie
Yeah, I have four worshipers in my household
They are all under eight so if they still worship me in 15 years we have done a good job.
Enjoy it - my 8 year old doesn't think I'm cool anymore. Probably doesn't help when I'm pleading her to hug me when I drop her off for school.
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