Hitting the lending ceiling...

[C-mac]

Hi folks,

I've built my portfolio (so far, anyway - still a ways to go!) With mainly one lender who has run me numerous loans over the years. They have served me well, and I knew he day would come where I'd hit a lending ceiling with them. That day was today, when they pretty much said 'we will approve this one, but it'll be your last for the foreseeable future).

My question for forumites is this: when you hit the ceiling and move on to another lender (regardless of whether this is direct to a lender, a lender selected/suggested via a broker), will lender #2, being given full disclosure of your existing loans with lender #1 (guessing I have to be transparent with this, for lender #2, right?) still lend to you? If so, will they ramp up their fees and rates because they might deem you as high risk?

I know they'd be hungry for the business but they must also comply with prudential policies right?

Suggestions on how to approve lender #2 would be kpst welcome!

 

[Jamie M]

You need to declare ALL debts.

The difference is that lender two can assess the repayments on ALL your current debts different to lender one.

For instance - lender one is probably calculating your current repayments based on P&I at a rate 2% - 3% higher than they actually are. This will hurt your borrowing capacity.

Whereas - the next lender may calculate the debts you have with lender one at what they actually are (so not at an inflated interest rate).

That's how you're able to borrow more by using different lenders.

Cheers

Jamie

 

[Peter_Tersteeg]

You've asked a question that's very, very open ended without any real specifics on your current circumstances.

Lender 2 will need to be given full disclosure of everything you've got.

How much lender 2 will be able to give depends on your financial situation. Many lenders are adjusting their rates (but not their fees) based on your risk profile, but they define this by the LVR, not anything else. You'll get the most competitive rates if the LVR is 80% or lower.

If you've done everything with a single lender, there probably is a reasonable amount more that you can do by diversifying lenders. The best solution will depend on any number of variables.

 

[Shahin_Afarin]

1. Make sure you switch to IO repayments if not doing so already as lender 2 (depending on which lender it is) can take actuals which means lower outgoings if its IO versus P&I

2. You are going to use a more generous lender but its a bit of a balancing act. You don't want to use the most generous too early. Also you have a lender like Macquarie which will take their debts at actuals provided that the debt has been with the bank for more than 6 months. Whereas you have generous lenders like NAB which will take other lenders' debts at actual amounts but their debts at benchmark rates.

3. See if you can use any additional income such as bonus or commission payments for servicing.

4. Negotiate a better rate with the existing lender which will help with point 1.

5. Don't fix in this type of a market! Often I see people fixing at higher rates and thus they are paying higher interest and this will again affect point 1.

6. Make more money

 

[Redom]

Great post Shahin, some very good tips in there.

Switching lenders will likely make a very big difference to your borrowing capacity - how big of a difference will depend on how big the mortgage debt you hold is.

If you have $2mill worth of debt that your paying $100k on per year, your existing bank will likely insert a yearly repayment of somewhere in the vicinity of $160k into your borrowing equation. Whereas an alternative lender may take the $100k figure as is. Therefore your expenses have fallen by $60k from one borrowing calculator to the other. This of course can make a huge difference to your borrowing.

Cheers,
Redom

 

[lazibones]

Who is the best lender if you have about 40% LVR, high gross income, little taxable income. If I do things the opposite way around, by bringing forward income and delaying expenditure, is one years financials enough for any bank I suppose all banks would need 2 years financials. West Pac have promised the world and a cheaper rate but when it comes to signing they lowered the loan limit than the current Variable of 5.17 @ BOM. I have approached a couple of brokers but they wouldn't even try to get a loan. How long to you need to show increased rent for, for that to be considered?, a full year I suppose. Thanks for any response.

 

[C-mac]

Hi everyone,

Some fantastic advice from all of you - so thank you !

I am IO for the lot, right now. Current lender is not counting my extraordinary income (being inconsistent sales commissions and bonuses in my day job) until I've been with my day job for 2 years (I'm on 18 months with the job as of today). Maybe I'll approach lenders who will consider this additional income, it'll make a world of difference in borrowing capacity I believe.

80/20 LVR is not my preference for the remaining portfolio - building I have in mind. 90/10 is more what I'm interested in (with capitalized LMI added on the loans, of course). Not that it matters but I won't need offsets against any of the new loans as the current loans have two offers with more volume capacity than I'll ever likely be able to park there (short of me winning lotto!)

Love this idea of banks taking 'considered debt compared to actual debt' and the variances between lenders. I'd say this would be my lowest hanging fruit in getting good traction with a new lender.

Shahin, thanks in particular for your advice, I might PM you further on this if you don't mind

 

[Rolf Latham]

80/20 LVR is not my preference for the remaining portfolio - building I have in mind. 90/10 is more what I'm interested in (with capitalized LMI added on the loans, of course).)

this is the main issue for many peops. Its not even so much about serviceability many times.

Structured addiction to higher lvr LMI backed loans is probably not the most long term sustainable way to build and keep a growth portfolio.

During acquisition, sure ......... go for the max leverage you can reasonable get, but at some point we need to come of age and come out of the sandpit to become an Investor vs Investing ( as per the RK definition)

ta
rolf

 

[C-mac]

Hey Rolf,

Absolutely. Higher lvrs during the 'build' years is where I'm at, then the mantra will switch to easing myself down on my loan lvrs during what I call the 'tinkering' years