Diversifying lending

[MelbGal]

Hi there,

Is anyone else purposely diversifying their lending across more than one lender ?
If so, what have been the reasons for this and pros/cons?

I think I have maxed out my rate discounts from two lenders at present and unlikely to get any further discounts even if I move all lending across to one of them so I started thinking that it might be more sensible to leave my lending diversified so that I can hedge against any favourable/unfavourable rate changes.

Obviously, I have to pay an extra package fee but this is less than $400 a year and deductible. Two Internet banking accounts is also annoying esp. when you want to transfer large funds in real time. These are my main cons but I guess all manageable.

Does anyone else have any experiences they can share ?

 

[Aaron_C]

I always diversify lenders according to what their policies are and servicing etc.

 

[jonmardell]

the benefits to diversify are policy and possibly to reduce risk. By having it all at one bank can increase your discounts and save on fees. Which banks are you currently with? and loan amounts? and discounts you are currently getting? Increased lending should always get a bigger discount but the discount between a 1 million loan and 2 is not as big as you would expect.
Jon

Hi there,

Is anyone else purposely diversifying their lending across more than one lender ?
If so, what have been the reasons for this and pros/cons?

I think I have maxed out my rate discounts from two lenders at present and unlikely to get any further discounts even if I move all lending across to one of them so I started thinking that it might be more sensible to leave my lending diversified so that I can hedge against any favourable/unfavourable rate changes.

Obviously, I have to pay an extra package fee but this is less than $400 a year and deductible. Two Internet banking accounts is also annoying esp. when you want to transfer large funds in real time. These are my main cons but I guess all manageable.

Does anyone else have any experiences they can share ?

 

[MelbGal]

the benefits to diversify are policy and possibly to reduce risk. By having it all at one bank can increase your discounts and save on fees. Which banks are you currently with? and loan amounts? and discounts you are currently getting? Increased lending should always get a bigger discount but the discount between a 1 million loan and 2 is not as big as you would expect.
Jon

Hi there, what do you mean by reducing risk? for me or the bank?

All loans are individually secured to its own property at 80% lvr or less so I hope this means that they only repossess the property attached to the defaulted loan (should that happen).

My lending is currently split across anz/nab and the rate is standard variable rate = 5.13% (1% disc).

I'm currently confirming if I could get more if I consolidate my lending but that might be it. Id only consider consolidation if there were a bigger discount on offer otherwise I can't see the advantage except saving the annual package fee which is immaterial, and there are no other fees.

 

[jonmardell]

banks have an all monies clause which means they can take other properties they hold as security. Reducing risk would come into play in a credit crunch so reducing your risk. Our banks are very safe so that is a very low risk at the moment.

Hi there, what do you mean by reducing risk? for me or the bank?

All loans are individually secured to its own property at 80% lvr or less so I hope this means that they only repossess the property attached to the defaulted loan (should that happen).

My lending is currently split across anz/nab and the rate is standard variable rate = 5.13% (1% disc).

I'm currently confirming if I could get more if I consolidate my lending but that might be it. Id only consider consolidation if there were a bigger discount on offer otherwise I can't see the advantage except saving the annual package fee which is immaterial, and there are no other fees.

 

[tobe]

Id suggest this is a bad reason to 'consolidate' your lending with one lender.

yes, there is a cost saving in terms of rate (which is less if the interest is tax deductable?)

the downside is the risk of being at the mercy of one lender. Granted hopefully you can change over and keep your standalone 80% LVR structure, even so, having all your lending with one bank weakens your position.

Its also about assessment policy, variations policy etc.

''owe the bank $1,000, and you have a problem, owe the bank $1,000,000 and they have a problem''

Trouble is, Banks risks team do manage their problems....

 

[oc1]

I borrow from whichever bank lends me the money.

Oscar

 

[Jolly123]

Hi, I'm a newbie, hopefully I'm not against the foru rules by asking similar but not exactly the same question as MelbGal.

I'm currently in situation of either consolidate or just get a top up and go to a new lender such as Bankwest.
ATM, having my only IP with UBank. As I'm considering to buy another IP, I don't think UBank is keen to help me with buying a new IP as they like refinance of existing secured IP. So I have asked a top up instead (this will take 3 - 5 wks), then find a new lender with that top up money as deposit.

Does anyone know if this is a better strategy than refinance the whole thing with new lender? IP with loan of $230k, been revalued in 2011 as $490k. Has asked a top up of $80k.

Thanks.

 

[buster]

Diversify, I don't take out loans of more than 1.2m with the one bank, less than that they bend over backwards, more than that they become unco-operative . They don't like lending more than 1.2m to one customer but like to lend more than 600k. They consider higher loans too much to risk in case of default and worry about serviceability of them. I seem to get the best deals on loans between 600k to 1.2m. I suppose they would consider different people differently.

 

[Aaron_C]

Does anyone know if this is a better strategy than refinance the whole thing with new lender? IP with loan of $230k, been revalued in 2011 as $490k. Has asked a top up of $80k.

Thanks.

Refinance and get cash out if thats what you need.

 

[MelbGal]

Hi Aaron, Jonmardell, Tobe, Buster, Thanks for your responses and advice.

I had not really considered the all money clause and the weakening of my position when consolidating all with the one lender. I guess with a smaller portfolio this would have been less an issue but as I have started investing again this has definitely given me some good food for thought with regards to structuring my lending.

I did do some online searching, and seems to be a common thought to structure your debt to have ~ $1m with a lender.

I will definitely take your advice on board and continue to diversify across more than one lender and aim to keep my PPOR and savings separate from the banking of my IPs. I agree that the nominal rate saves (tax deductible debt) are not that big a price to pay to mitigate my own risk.

 

[Peter_Tersteeg]

Keeping your lending with various lending to about $1M gets you a good combination of pricing and flexibility. Putting everything with a single lender will certainly get good pricing, but you will hit a brick wall sooner and it'll be harder to get around it.

Most investors with large portfolios value access to money over cheaper rates.

Jolly, you'll find that online lenders are certainly cheap, but there are other areas in which they're not competitive. Set and forget is fine but they don't suit an active investment strategy. Don't kid yourself though, moving lenders will take more than 5 weeks.

 

[Jolly123]

To Buster, Aaron and PT_Bear, thanks for advice. Will definitely get the cash and go to a diff lender and start thinking of structuring my mortgage.

Still, have one more question. If I want to split the equity, eg. Buying another 2 cheapies with $50k deposit each, with 2 diff lender, don't they know this from credit check? I might not get the 2nd mortgage as I only has salary of $59k gross per year. I still don't understand how ppl can keep borrowing with low income within short time.

 

[buster]

Ive found online lenders make lots of promises and fail to deliver, just a waste of time. The rate is irrelevant if they stuff around and wont give you the money when you need it, or give it when you dont need it.

 

[Rolf Latham]

Ive found online lenders make lots of promises and fail to deliver, just a waste of time. The rate is irrelevant if they stuff around and wont give you the money when you need it, or give it when you dont need it.

not everyone's experience, BUT yours is probably more common than is portrayed, especially for more complicated transactions.

Id guess the Ma n Pa PPOR loan is really what they are chasing most of the time, which often represents a simple refinance

ta
rolf

 

[tobe]

To Buster, Aaron and PT_Bear, thanks for advice. Will definitely get the cash and go to a diff lender and start thinking of structuring my mortgage.

Still, have one more question. If I want to split the equity, eg. Buying another 2 cheapies with $50k deposit each, with 2 diff lender, don't they know this from credit check? I might not get the 2nd mortgage as I only has salary of $59k gross per year. I still don't understand how ppl can keep borrowing with low income within short time.

These ppl usually either are just lucky, or have a PI savvy broker who understands their risk profile and manages their borrowings accordingly with a well thought out plan.

ie, approaching the 'harshest' lender first, and the 'easiest' lender last. doing 90% deals rather than wasting equity at 80% or wasting credit score and lender choice at 95% etc etc. that sort of thing.

 

[MelbGal]

Help - question on structure

OK - so have been looking into restructuring my lending based on research and advice received. I'm a little stuck and have thought of going in one direction but wanted to run this by fellow experts on Somersoft.

Firstly, I've researched the all money clause and read through all my documentation and couldn't see anything stating that they could repossess other properties if I am in default on one loan (my loans are not crossed). It does state in the T&Cs that they can take your savings without notice. I also assume that if you are in default on one loan then they may try to look into the other loans to see if you are in default for another reason i.e. financial position changed, valuation decreased etc. which could then cause further issues. Is this what everyone is referring to when they refer to AMMC and risk of all lending with one lender ?

So this leads me back to a key reason why I might want to split my IPs and PPOR across lenders. I can put all my IP's with one lender and my PPOR with another but then my loan ratio is very skewed i.e.IPs over $1m / PPOR under $1m.

So my second question to fellow experts is should I split my lending so that IP and PPOR are with 2 separate lenders, or consider the loan ratio itself so that the ratio of lending is largely equal between both lenders (each hold just over $1m). This would mean that Bank 1 would hold PPOR plus 1-2 IP's and Bank 2 would hold the remaining IP's. (I'm also considering other factors such as bank valuations on these properties, risk of each property etc when deciding which to put in what bucket). I know some people have said to try to keep lending to $1m but I am not keen getting a 3rd lender and at this stage am not planning any additional purchases in the next year so 2 works for me right now.

Thanks again for your advice !

 

[luckyone]

banks have an all monies clause which means they can take other properties they hold as security.

I'm with two banks for loans at the moment, St George and Westpac. Since they're owned by the same people, does that mean they can grab my properties held with the other bank?

 

[tobe]

OK - so have been looking into restructuring my lending based on research and advice received. I'm a little stuck and have thought of going in one direction but wanted to run this by fellow experts on Somersoft.

Firstly, I've researched the all money clause and read through all my documentation and couldn't see anything stating that they could repossess other properties if I am in default on one loan (my loans are not crossed). It does state in the T&Cs that they can take your savings without notice. I also assume that if you are in default on one loan then they may try to look into the other loans to see if you are in default for another reason i.e. financial position changed, valuation decreased etc. which could then cause further issues. Is this what everyone is referring to when they refer to AMMC and risk of all lending with one lender ?

So this leads me back to a key reason why I might want to split my IPs and PPOR across lenders. I can put all my IP's with one lender and my PPOR with another but then my loan ratio is very skewed i.e.IPs over $1m / PPOR under $1m.

So my second question to fellow experts is should I split my lending so that IP and PPOR are with 2 separate lenders, or consider the loan ratio itself so that the ratio of lending is largely equal between both lenders (each hold just over $1m). This would mean that Bank 1 would hold PPOR plus 1-2 IP's and Bank 2 would hold the remaining IP's. (I'm also considering other factors such as bank valuations on these properties, risk of each property etc when deciding which to put in what bucket). I know some people have said to try to keep lending to $1m but I am not keen getting a 3rd lender and at this stage am not planning any additional purchases in the next year so 2 works for me right now.

Thanks again for your advice !

Sounds like you need specific advice.

AMC pretty much, while they can access other properties, if another bank holds that 'other property' by first mortgage, they are going to find it dificult.

In terms of specifics see point above, but generally its security, not loan amount, ratio or purpose thats important for risk mitigation. which is where vals, lending policy, and investment strategy going forward come into play.

For instance, where for risk mitigation it might be best to have 3 seperate lenders for 3 seperate properties, something about a clients future goals, or something relating to lender policy, or pricing might mean there are 3 properties across 2 lenders etc.