loan 100% and put deposit in offset

[Mr Ed]

Wish-ga,

I came across you’re your post and have an answer for you. However I’m reluctant to tell you because you might get "analysis paralysis".

Wether you do or don’t,

CBA and StG will both take a Term Deposit as security under Lien. You’ll receive interest on the TD and they reduce their risk. However realise it isn’t there for redraw or offset purposes purely as security.

More commonly found in commercial lending but a powerful tool when combined with substitution of securities. (Swapping loans onto other properties).

Now go and but that IP, before you go Woosha-ga.

 

[Boyler_Room]

Mr Ed,

Out of curiosity, what sort of $$ are we talking in the TD? A couple of grand? 10G? 25G? 50G? More??

Regards,
Boyler Room

 

[Mr Ed]

BR,

In residential loans work on a minimum of 20% of the asset value in your TD. In a commercial situation it may be a lot more. It’s negotiable but not usually below 20%.

The bank basically needs to mitigate their risk. That’s the whole purpose.

Because commercial loans are often reviewable every 12 months you have the option of reducing some of your TD. Good Pmt history demonstrated, stronger financials etc. This type of structure is often found when financing to an unknown client with a sub standard security.

An example would be a start up business buying a piece of equipment, wanting to borrow over 60 months with no deposit, pmts for example would be $500 p/month. Lender would usually come back with an approval over 36 months @ say $700 p/month no balloon @ the end and a 30% upfront deposit.

Client would say the pmts over 36 months will kill his cashflow, broker would say 30% deposit into TD cast loan over 54 months and have reviewable in 12 & 24 months. Pmt history is created over 24 months TD is returned, clients cashflow is sensible in infancy of business. Problem solved. This structure is generally only done on an unregulated loan. Has many uses.

 

[Boyler_Room]

Thanks Mr Ed.

Makes sense to me.

Regards,
Boyler Room

 

[wish-ga]

Thx to everyone for their continued support.

Mr Ed I did speak to St George and ANZ but was told no. Maybe they do offer that to some people but I don't fit the criteria. It is less than 20k we are talking about so it seems the extra in mortgage insurance & higher interest rates do not make it a viable option.


I learned something while pursuing the concept which is good.

 

[mitchmakhan]

Hi wish-ga,
Suncorp have a term deposit (locked) and allow you to use that as security and an offset account against a loan, however this would not be 100% lend...
if you like pm me and I will put you onto the correct people...

Mitch

 

[Derekuhb]

100% Loans and deposit in the Offset???

Mr. Ed.

I agree with the above however bear this one in mind. The serviceability model for any lender will be higher and tougher with a 100% loan. How? They inflate their living expense value (based on the Henderson Poverty Index) on these loans and raise the bar to service and qualify for the loan. Secondly, all lenders build in a repayment buffer (the assessment rate) into their calculations. On a regular loan, its between 0.75% above the standard variable rate to qualify (CBA/ Colonial Bank) and up to a grand 2% above the SVR on a 100% loan.

Why is this so? The 100% loans were tailored to graduates with no deposit but would move into employment with a strong income. Period. I deal with two lenders and one starts at an SVR of 8.45% SVR and the second starts at 9.25% SVR. Do you think you can make you sums work with these rates?

Now this is what I beleive is crucial. These loans are closely corellated with the 'Post Code' index of the lender. I am not talking the big five here (they won't easily touch a 100% loan), I am talking about mortgage originators who may not deal with GEMICO or PMI for lenders mortgage insurance. By the way, these lender's LMI will be between 1.6% and 2.5% of the loan! If the post code index does not allow a 100% lend, NO DEAL, deposit will be required, but the rates will be lower, the serviceability will be reduced AND the HPI figure, or the living expenses figure will also come down substantially. Easier to service the loan and hence a lower overall cost.

One of these lenders is looking to slowly phase out their 100% loan as the market is changing and they are seeking to reduce their 'Risk' profile. These two lenders were offering 110% loans up to 12 months ago in a rising property market. Now, these loans are finished and the 100% is currently being evaluated. If you live in Melbourne, you know about Docklands. You can go see the footy at Telstra Dome, and then rent a bed (a furnished apartment) for less than $50 a night? TRUE! Again, post code, 3000 - 3010 is being carefully reviewed. You will need to check the post code with the lender & if its out of a metro area, like Cairns, I dont expect this area will always be given red carpet treatment when looking at 100%, but I have not checked myself.

I hope this was a help because these policies above have prevented my clients to look at this option for 100% owner occupied loans. Now you have some numbers to work with and make an informed decision.

Derekuhb

 

[wish-ga]

100% Is definitely for a different purpose/situation.

I am now looking at a 95% loan instead.

Thanks everyone for expertise and encouragement.