Question for mortgage brokers

What if you are on an interest only period with bank A and have the ability to borrow $300k more with them. Then you borrow say $400k with bank B, because they have more relaxed criteria.

When it's time to renew your interest only period with bank A and they review your serviceability, you may not meet their requirements given your new loan with lender B and it may switch to principal and interest which may not be feasible from a cash flow perspective? Could something like that happen? Keen to hear peoples thoughts.
 
You shouldn't have to lock in interest only, unless fixed rates.. And if it was locked in you may only need to get a review if you borrow more with bank a... I'm not a broker but I'm sure they'll be in pretty soon and helpful as always! Bit chuffed i beat them
 
What if you are on an interest only period with bank A and have the ability to borrow $300k more with them. Then you borrow say $400k with bank B, because they have more relaxed criteria.

When it's time to renew your interest only period with bank A and they review your serviceability, you may not meet their requirements given your new loan with lender B and it may switch to principal and interest which may not be feasible from a cash flow perspective? Could something like that happen? Keen to hear peoples thoughts.

What bank is Bank A? Many don't need to assess serviceability to roll from 5 years to another 5.
 
Thats why you need a broker worth his salt to choose not only the best lenders for your scenario/goals, but also choose them in the best order.

Map it out to avoid that being a possibility from the outset.
 
What if you are on an interest only period with bank A and have the ability to borrow $300k more with them. Then you borrow say $400k with bank B, because they have more relaxed criteria.

When it's time to renew your interest only period with bank A and they review your serviceability, you may not meet their requirements given your new loan with lender B and it may switch to principal and interest which may not be feasible from a cash flow perspective? Could something like that happen? Keen to hear peoples thoughts.

Yes it could happen.
 
What bank is Bank A? Many don't need to assess serviceability to roll from 5 years to another 5.

The loan I'm on is interest only for one year and then it gets reassessed and extended. Let's say it's with a conservative lender like ANZ, then the second loan is with a more relaxed lender like NAB. From what I've been told, some lenders may lend up to 200k-300k more than others which rings an alarm bell if the first lender were to reassess. I see it as a house of cards if you were highly leveraged and then you had to switch to P&I and even reduce your LVR if you're at 90% for some loans.
 
What if you are on an interest only period with bank A and have the ability to borrow $300k more with them. Then you borrow say $400k with bank B, because they have more relaxed criteria.

When it's time to renew your interest only period with bank A and they review your serviceability, you may not meet their requirements given your new loan with lender B and it may switch to principal and interest which may not be feasible from a cash flow perspective? Could something like that happen? Keen to hear peoples thoughts.

I think you are talking about 2 completely separate things. One is the IO extension which fits a set of lenders (refer to previous post) and the other is serviceability.

I guess the question is what are you trying to achieve?

If ANZ is the lender you are talking about then I genuinely cannot see a lot of benefit using them as a long term robust lender.
 
It can and does happen regularly, and can be very painful, especially when interest rates are going up.

This is one of those questions people don't think to ask but a lender should disclose. While a borrower is supposed to disclose future possibilities that may impact their repaying the loan, there is no requirement for the lender to explicitly explain these sorts of things.
 
When it's time to renew your interest only period with bank A and they review your serviceability, you may not meet their requirements given your new loan with lender B and it may switch to principal and interest which may not be feasible from a cash flow perspective? Could something like that happen? Keen to hear peoples thoughts.

That's one of the reasons why you don't simply use lenders in order of serviceability. The whole, "order of lenders," and "using the lowest servicing lenders first," sounds good, but it's a rookie mistake. This is a problem that doesn't really get considered until a few years down the track when you want to access equity or extend and I/O term.

It's usually accessing equity that's the more important problem, not extending an I/O term.

This can become a real problem for new investors. A lot of people go hard when starting out, leveraging to 90% where they can. If you try to refinance that original mortgage in a few years to a more appropriate lender, it may mean you'll pay LMI again which can make this a very costly exercise.

The solution tends to require more forward planning than can be reasonably predicted. Over a 5 year period enough things can change (rates, policies, personal circumstances) that the best plan needs to change completely.

Often the best way to go about this is to use a reasonably generous lender in the early stages, but don't completely max them out. You then use a more moderate lender for the next few and then go back to another (but different) generous lender. At that point you'll probably find yourself going back to the first lender for another equity release.

By this point most investors who are aggressively acquiring property will likely have exceeded most LMI constraints and are going to have trouble accessing LMI. There does come a time when you need to step away from LMI and purchase on an 80% basis. Given this tends to occur when you've borrowed somewhere around $3M - $5M, it's a nice problem to have.
 
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I think the question is whether banks reassess your scenario when doing an I/O extension.

Yes, most do. And yes, the re-assessment is done at the time of the extension where your situation may have changed. Your servicing with that lender may no longer be possible and this could mean a restructure. If planned for well ahead, it may be avoided by consideration of lender.

Definitely need to factor this in as part of a plan, along with other factors including ordering/structuring/equity releases/term extensions/serviceability etc. Define your goals out with a broker and get them to map it out for you.

Some lenders do significantly longer I/O terms than others - up to 15 years. They're also the lenders that are generally easier to extend I/O terms with too.
Can be useful when trying to manage this.

Cheers,
Redom
 
What if you are on an interest only period with bank A and have the ability to borrow $300k more with them. Then you borrow say $400k with bank B, because they have more relaxed criteria.

When it's time to renew your interest only period with bank A and they review your serviceability, you may not meet their requirements given your new loan with lender B and it may switch to principal and interest which may not be feasible from a cash flow perspective? Could something like that happen? Keen to hear peoples thoughts.

It does happen.

What a borrower can do is to refinance to another lender from bank A to get the I/O loan. Different banks/lenders have their own niches. A borrower circumstance do change, the revision of the loan is necessary. When a borrower entered a loan with the bank A may have different set of requirements and expectation for his/her future. After 5 years things may change, it's only normal to have all the loans review and reassess the situation. so what you describe here is normal and it does happen.
 
The loan I'm on is interest only for one year and then it gets reassessed and extended. Let's say it's with a conservative lender like ANZ, then the second loan is with a more relaxed lender like NAB. From what I've been told, some lenders may lend up to 200k-300k more than others which rings an alarm bell if the first lender were to reassess. I see it as a house of cards if you were highly leveraged and then you had to switch to P&I and even reduce your LVR if you're at 90% for some loans.

ANZ is easy to extend the interest only period as long as the total years is under 10 years, i have done over 20 of my own and they were non credit critical every time and done in a couple of days.

The one who I find most painful is NAB.

Bankwest , Macquarie , Westpac, CBA are also very easy

CBA is a good one for setting up as principal and interest for servicability purposes and then doing an online switch straight after to interest only.
 
ANZ is easy to extend the interest only period as long as the total years is under 10 years, i have done over 20 of my own and they were non credit critical every time and done in a couple of days.

The one who I find most painful is NAB.

Bankwest , Macquarie , Westpac, CBA are also very easy

CBA is a good one for setting up as principal and interest for servicability purposes and then doing an online switch straight after to interest only.

Interesting, would you be able to elaborate why nab is more painful?
 
Interesting, would you be able to elaborate why nab is more painful?

They will require a full application to create a new IO period - signed docs, payslips etc, whereas others will allow just a quick phone call and it will be completed by the time you hang up the phone.
 
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