Help for servicability computation

Hi all,

I'm looking for the highest servicability of any bank, so I can get more equity out through refinance, to finance the deposit of my next property.

My current property is worthy about 570 to 600K now, which has a 400K mortgage already. My intention is to refinance this property, and borrow more against the 90% LVR, it's roughly 520K. However, my current lender told me my servicability is not enough to get a 500K loan. (My salary is 63K/annual and this property is rented out for $290/week)

I know different banks have different ways to compute servicability, so I'm wondering if anyone can recommend me some lenders that might let me refinance the mortgage to 500K?

Thanks very much in advance!

Ryan
 
I'm impressed that you got that much in the first place. You must be down at least $10k a year on this property (15k rent, 30k interest)? Given your salary, how much more cashflow can you actually afford?
Alex
 
Ryan, Find a good broker who can share this information with you. As you know each lender has a different set of criteria when it comes to servicing loans.

A good broker will know which banks allow more debt servicing than others.
 
If the property is tenanted you are presumably living elsewhere and either paying some form of rent / board or stayig with relatives.

I would have thought $500K was achievable.
 
Hiya

working on the assumption of no other liabs and minimal rent outlays and no dependents..........and the assumption that the 63 is all cash etc etc

Then I reckon Adelaide bank would do a 540 k lend at 90% with capped lmi

But, we know little of your actual situation and as has been suggested, seek the services of a good independent broker with a spread of lenders.

ta
rolf
 
hi

Ive got a quick question re: servicabilty of new loans and wanted to check im thinking on the right track.

When looking into whether or not you can service a new loan, does this simply mean you check to see if you can afford the interest repayments only? and NOT the principle component of the loan?

eg. borrow $300k. @8%. = 24,000 = $461p/wk = yep ok. But what about the loan itself?
 
hi Y man

So what do you at the end of the loan then? re-finance for another XX years I/o again? whats the common strategy for clearing the principle owing amount in the end. :confused:
 
I believe Banks take Principle plus Interest figure when calculating servicability even though you are taking IO option.

Generally correct. Most use P&I at 1.5% above the standard rate on new and existing borrowings, not actual repayments. There are a few exceptions and these tend to have the most generous serviceability when you've got multiple properties.

Others will take negative gearing into account, and some won't. This will have a variable effect on the outcome depending on your income.

Speak with a broker about your specific situation. There's not general answer to this question.
 
Generally correct. Most use P&I at 1.5% above the standard rate on new and existing borrowings, not actual repayments. There are a few exceptions and these tend to have the most generous serviceability when you've got multiple properties.

Others will take negative gearing into account, and some won't. This will have a variable effect on the outcome depending on your income.

Speak with a broker about your specific situation. There's not general answer to this question.

PT_Bear is right. To make matters harder to follow, some have different minimum living expenses and dependency costs as well.
There's another option to improve servicability if you're using a fixed rate - some lenders can assess your servicability on the exact fixed rate if it's a long term fixed rate (usually 5 years).
To repeat what everyone has said, speak to your broker :)
 
Rather than starting a new post, I though I would resurrect this one as my query is related, ie. servicability.

In speaking with my mortgage broker, I have been told that some banks use the formula of lending out 5 1/2 times your annual salary. I become somewhat challenging of this given that if equity is acceptable, ie. LVR below 80%, then there would come a point that banks would lend you no further funds due to lack of annual income. Your thoughts?

Also, at what point do lenders look past the servicability of an individual and rather focus on their equity to determine whether to increase the size of a loan? I suspect the answer comes back to low/no doc loans which I am still learning about but would appreciate your thoughts.

Cheers,
 
Hi Red,

Your broker's 5 1/2 times is probably a rule of thumb that he uses, the formulas that lenders use are a bit more complicated and take into account dependents, child support, living costs (such as hendersen poverty index) and many other things.

Lenders are always supposed to look at servicability, even with a very low LVR a lender will always want you to have an income to pay it back.

Low doc you need to declare an income, but you do not need to provide proof more than an ABN & GST registration (if over $75,000). Your statement may also be used in an audit by the tax office.
Generally you will pay lenders mortgage insurance on anything > 60% LVR and the maximum LVR is usually 80%.
Some lenders require an ABN registered for 2 years, but there are others that are ok as long as your ABN was registered yesterday!
Usually, the lower the LVR, the less time an ABN needs to be registered but many lenders still have minimum timeframes that your business has to operate.
There's also PAYG low doc loans out there to make things more interesting!

No doc is the product that is more of an "asset" lend because they don't request the income details. You pay for this though one way or another (e.g. higher rates).

Hope this helps.

Dan
 
Im new to this and struggling a bit to understand some basics. Ive looked around but cant find a definitive answer on LVR

I thought you had to have a lvr of of 80% to avoid LMI so how do the banks calculate your LVR all debts against / value of assets.

My home is valued at 450k loan of 280k
Recently purchased IP for 287k but total borrowed 305k
No other debts

I thought I would calculate LVR by 280 + 305 / 450 + 305 = 80.33% lvr

is this right?
 
Im new to this and struggling a bit to understand some basics. Ive looked around but cant find a definitive answer on LVR

I thought you had to have a lvr of of 80% to avoid LMI so how do the banks calculate your LVR all debts against / value of assets.

My home is valued at 450k loan of 280k
Recently purchased IP for 287k but total borrowed 305k
No other debts

I thought I would calculate LVR by 280 + 305 / 450 + 305 = 80.33% lvr

is this right?

It depends how the loans have been structured.

Your house has an LVR of 280/450 = 62.2%
Your IP has an LVR of 305/287 = 106.3%

Given this, they've cross collateralised the two properties (used both properties as security for both loans), so your calculation is the correct one.

For an LVR of 80.33% most major lenders would be able to waive the LVR requirement, although technically they are entitled to charge it. I've negotiated this myself with CBA recently and Westpac have an 85%, no LVR policy.

Keep in mind with cross collateralised loans, if you wanted to increase the borrowing against either property, you would pay mortgage insurance on the combined value of the loans, not just the loan you're increasing. This is one of may reasons why this structure benifits the bank, not yourself.
 
Im new to this and struggling a bit to understand some basics. Ive looked around but cant find a definitive answer on LVR

I thought you had to have a lvr of of 80% to avoid LMI so how do the banks calculate your LVR all debts against / value of assets.

My home is valued at 450k loan of 280k
Recently purchased IP for 287k but total borrowed 305k
No other debts

I thought I would calculate LVR by 280 + 305 / 450 + 305 = 80.33% lvr

is this right?

280 + 305 / 450 + 305 = 77.48%

But your IP is valued at 287K not 305...So, I wouldve thought the overall LVR would have been 280+305/450+287 = 79.38% lvr

below 80% either way overall, however as PT says it depends on how your'e structured...
 
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