Moving finance to one lender

[dantheman]

Hi All,

My current setup is this:
LenderA: one loan over propertyA used for propertyA
LenderB: loan over propertyB used for propertyB
line of credit over propertyB used for propertyA.

I am thinking of moving all the loans to LenderA in order to improve the interest rate and reduce fees.

Can I do this without them cross-collateralising? I can keep two seperate loans. How can I be sure they won't cross-collateralise without my permission?

Also - is it ok to combine the loans of lenderB together into one loan even though the purpose of the line of credit was for a different property? (although it is secured against the same property..

Thanks

Dan

 

[Peter_Tersteeg]

You can move your loans to one lender without cross collateralising, but it does depend on the lender, the loan product and the structuring of the loans. There are several lenders who automatically cross collaterlise all securities, regardless of how they're structured.

Some lenders will also cross collateralise if you group properties together into a single package. CBA/Colonials 'Umbrella' package is a good example of this. Citibank also does it with their professional package unless you're willing to pay the package fee twice.

Also keep in mind that many bank officers will cross collateralise as it benefits the bank, regardless of the banks policies on the matter.

If you've got several loans with lender be all held against a single property it would be fine to combine them to make management easier, but make sure that all of the loans is for the same purpose (i.e. investment or personal use). If you don't you may have issues with claiming deductions with the ATO.

The advantage of consolidating your loans is you can often negotiate better rates and fees, but it does also put all of your eggs in one basket. Even when lenders haven't cross collateralised a portfolio, I have seen cases where the lender started dictating terms to the investor across multiple properties when the investor only wanted to do something with one. The investor had no choice but to refinance the entire portfolio or be limited in their future plans.

 

[Medine]

Hi Dan,

I'm with Pete's point of view - keep them separate unless there's a lot at stake.

If you decide to consolidate the banks are keen to cross collateralise you because their risk calculation is improved, so be prepared to insist!

Cheers, Medine

 

[dantheman]

You can move your loans to one lender without cross collateralising, but it does depend on the lender, the loan product and the structuring of the loans. There are several lenders who automatically cross collaterlise all securities, regardless of how they're structured.

I am planning on using St George Pro package - but still 2 seperate loans, plus an offset account. Anyone had experience with them? Do they force x-col?

Also keep in mind that many bank officers will cross collateralise as it benefits the bank, regardless of the banks policies on the matter.

How will I know if they have done this? Do I need to sign anything or can they do it themselves at any time?

If you've got several loans with lender be all held against a single property it would be fine to combine them to make management easier, but make sure that all of the loans is for the same purpose (i.e. investment or personal use). If you don't you may have issues with claiming deductions with the ATO.

Yes - all investment purposes: stampduty, deposit, purchase costs, and property loans.

The advantage of consolidating your loans is you can often negotiate better rates and fees, but it does also put all of your eggs in one basket. Even when lenders haven't cross collateralised a portfolio, I have seen cases where the lender started dictating terms to the investor across multiple properties when the investor only wanted to do something with one. The investor had no choice but to refinance the entire portfolio or be limited in their future plans.

Yes the risk is a $1000 deferred establishment fee if I re-finance within 3 years for each of the two loans. If I x-col into one - then there is only one $1000 deferred establishment fee and I can refinance the whole lot if they give trouble when I buy my next property. Hence I am beginning to consider x-col since it is only two properties and I could simply refinance both if need be - if they are on the one loan.

Cheers

Dan

 

[mitch]

Gday Dan ,

lve just moved all my assets to the nab in a portfilio package.

lt lets me have access to all the equity l have in all my properties .

For example if l had 1.0m in assets and 500k in liabilities on a 70% lvr then l have a 700k limit.So to buy a property l just write a cheque so long as l stay under the limit.They tell me if l put more asset in the limits go up and if l remove a property the limit goes down , its spose to be that simple.

Before , l had my equity spread over 3 lenders and lo doc was my only option and even then l had to try to sourse my deposit out of the equity in some other property/s with all the properties secured to their own lender , this was hard.

l did feel unsure about this but the benifits out weigh the downsides.

So if its what you need to do to move ahead.....

Regards Mitch

 

[Peter_Tersteeg]

Hi Mitch,

I actually had someone from NAB tell me a client was 'too rent reliant' recently, simply because the majority of their income came from rent (across several properties).

The structure you've set up appears to be easy to work with, but the NAB have cross collateralised your properties. Eventually you may get to the point where regardless of your equity position, the NAB will get cautious about lending you more money, because you would have trouble servicing the limit - in their opinion not yours.

Your only choice at that point will be to:

1. refinance all of the properties to another lender - If your circumstances require a lo or no doc, LMI may be payable on the entire loan which will be very expensive for a $1M portfolio.

2. Undertake a potentially very lengthy and complex restructuring process to remove some of the securities from the NAB one at a time.

I hate to appear to be criticizing and negative, but I've recently seen two different clients who have had multiple securities with the NAB under a similar structure. In both cases it was easy to set up and use initially, but when their circumstances changed (just a little), they were completely screwed. In both cases it cost them thousands and a lot of time. In both cases they were had a good income and an LVR of less than 70%.

Many years ago my parents went directly to the NAB for a loan of $100k, against a purchase price of $450k. The NAB also wanted to take their owner occupied home (worth > $500k, owned outright) as additional security.

As a broker I do deal with the NAB, but I proceed very carefully.

dantheman, I'll do some checks and get back to you.

 

[sailor]

Recently got a loan to purchase a property (A) and the mortgage docs specified which property (B) was to be used as collateral. However, when I phoned the bank to organise access to internet banking, they told me their records showed another of my properties (C) as being the collateral. I pointed out that this was incorrect, they couldn't do it, as I had already used that particular property (C) as collateral with a different lender. She checked, and sure enough they'd recorded it incorrectly on their computer. Pays to check this stuff.

 

[Medine]

Hi Dan,

St George don't insist on cross collateralising, but they do like it.

We once made an application for two properties and two loans uncrosscollateralised, and the bank boffin phoned us for clarification.

I told him that this was the structure that the Financial Planner had advised was necessary (which usually sets them right) and he said that he was prepared to go against their advice

We insisted, and told the clients that we would need to check the documents carefully. Two weeks later the contracts arrived with both securities listed on both loans (cross collateralised) !

We got new documents sent, but it was a lesson in how insistent you need to be some times.

Cheers, Medine

 

[Peter_Tersteeg]

St George generally do cross collateralise all properties within a single professional package.

To avoid this, you can take out two professional packages, but you'll pay two annual fees and you may have difficulty negotiating a volume discount.

 

[wanelad]

I am not sure how much you are going to save with two properties under the one lender have you actually done the sums? If you are saving on rate dont forget to take into consideration the fees.

If you are able to save and it is substantial then it may be worth it however if the amount is negligable then the complications of cross colateralising would not be worth it.

As has been mentioned, if down the track one lender becomes a bit difficult you have the other that you can approach and is already in the picture.

Re the Nab issue I have heard the same with this so called package of ease, they make it simple to get you in the begining but does not take long before you get bound. I guess it all depends on the long term plan and how far you want to go. If you are only buying a few properties it wont hurt, however if want to keep expanding at some point you will incur a problem

 

[mitch]

Gday P T Bear,

many times i've been told i'm too rent reliant .

with what i'm planning to do next , the nab have let me have / offered me a line of credit secured against all my r/e giving me access to 260k.Just write the cheque , much much better than trying to get a loan after l find something to buy.

This is enough to do what l would like to do for my next property investment.

l fully expect to have issues with the one after that , l always have issues with any lender becouse im too rent relient or l might not sell anything (lm in sales )and go bust becouse all my properties are vacant , so l have fairly thick skin when it comes to rejection.

Regards Mitch

 

[Peter_Tersteeg]

Hi Mitch,

In my opinion, 'Too rent reliant' is a load of bull which comes from someone who doesn't really understand that the risk of having a substantial number properties in your portfolio vacant at once, is significantly less than the risk of someone in a bank loosing their job to outsourcing in a call centre in India. NAB is one of the few I still hear it from.

My suggestion to help you move forward in the future is to have separate loans against each of your properties with NAB rather than one big limit. Each loan should be up to 80% of the property value.

You'll still be borrowing as much, and they'll still be cross-collateralised, but at least if you need to discharge one or more properties in the future, it'll be a reasonably clean break and you won't have to go through a restructure of your entire portfolio.

Regardless of this, give me a call when you hit a brick wall with the NAB. I can help.

 

[dantheman]

St George generally do cross collateralise all properties within a single professional package.

To avoid this, you can take out two professional packages, but you'll pay two annual fees and you may have difficulty negotiating a volume discount.

Thanks, I'll have to see what comes up on the loan contract. If I can have multiple loans with only one $375 fee for all, then the saving is there. Cross-collateral would be fine for now as long as they let me borrow to buy my next property - and the valuations are decent. If not, I guess it will be a re-finance of all properties. To stay prepared for this I will keep the loans seperate even if the security is x-col.

Thanks

Dan