Refinancing Help - Complex Structure?

[MIW]

Hi,
It's my first post here so I hope all knowledgeable brokers reply, thanks.
I am trying to pull out maximum equity from our loans and to set up at least 1 Offset account for the surplus cash from IPs. DO any of you do it? I realise this would be a very general overview but I am more after the right structure, rather than most equity, if that makes sense.
The worry is current broker, recommends providing PPOR (no loan) and all 6 or 7 joint name IPs to one lender. In addition, it is to be the same lender we have all our personal and business accounts with?
The reason stated was below:
As discussed, we will be moving forward with 'X Lender' for the finance in your personal names. This is great as you will benefit from the many things 'X Lender' has to offer including post-settlement flexibility, offset accounts, ease of internet banking, and a cheaper interest rate.
Would you agree with that recommendation? If yes, why and what would be the risks? If not, how would you go about it, would you do it the hard way to pull out equity one by one from each IP including PPOR?
Your feedback is really appreciated, thanks.

General overview (all stand alone loans):
- PPOR (no loan)
- IP 1 (Lender A - 53%LVR)
- IP 2 (Lender B - Account 1 IP - 31%LVR, Account 2 used as overdraft for business - 37%LVR used, total available for 2 Accounts 70%LVR)
- IP 3 (Lender A - 44%LVR)
- IP 4 (Lender A - 62%LVR)
- IP 5 (Lender A - 65%LVR)
- IP 6 (Lender C - 59%LVR)
- IP 7 (Lender D - used as overdraft for business - 13% used total available 70%) This account can pay off Account 2 in IP 2!
The above may represent around $6million in equity for around 60%LVR (adding PPOR).
We are self employed, have provided ALL documentation, so would be full doc loans.
The structure is more complex but we do not plan to refinance 2 trust IPs or any SMSF IPs....
Now would any of you give up the above structure to refinance with one lender, same lender we conduct our business with, where we had no previous loans with?
What would be the maximum equity above you would provide then to one lender, if to different lenders? Basically, I am at loss how to proceed and whom to trust?
Any feedback is welcomed, thanks!

 

[Kinnon Bell]

I would not have all debt AND business banking with just one lender. Eggs and basket come to mind...

Is there a reason the equity extract is not being done with the banks they're with now?

Without knowing all the ins and outs doesn't sound like the best way to go about it for you.

 

[MIW]

I would not have all debt AND business banking with just one lender. Eggs and basket come to mind...

Is there a reason the equity extract is not being done with the banks they're with now?

Without knowing all the ins and outs doesn't sound like the best way to go about it for you.

That's my intuition too and concerns I voiced with the broker. Maybe too much work for the broker, I don't know?

 

[Kinnon Bell]

That's my intuition too and concerns I voiced with the broker. Maybe too much work for the broker, I don't know?

Making a very broad statement here (and a big assumption) but sounds like if you refi out it will mean a bigger payday for the broker but this is just me being very cynical without knowing the brokers motivation other than what you quoted. Similar work involved for a top up vs refi.

Sometimes it is better to refi out but sometimes it's better to stick with the original bank really depends on the person, bank and situation.

 

[Peter_Tersteeg]

For starters, I don't know if I'd be keen to give up my PPOR if I had sufficient equity elsewhere to achieve my goals. It's fine to put it up if you need that much, but there's also something to be said about owning your home outright.

The biggest arguments for putting everything with one lender are price and convenience, and if it's set up properly, convenience isn't really a big deal. I also don't think you'd get much better pricing for $6M in loans than you would on $2M - $3M.

Having all your IPs, business and throwing your own home into the mix is a massive risk. Personally I like to keep business and investing as separate as possible. Even good businesses can go badly for reasons that might be out of your control. Do you really want to put your entire portfolio at risk as well as your own home? I don't know what the nature of your business is, but for mine the major business risks are ASIC, ATO and Banks. Neither the property market, clients or competition represent risks that I can't manage.

Then there's the elephant in the room. Some of what's been said suggests the properties may be cross collateralised. This simply makes it harder to salvage things if a future problem does arise (on a portfolio this size, 'harder' might be interpreted as 'disastrous').

It's difficult to make any specific recommendations on what you actually should do, but it does appear that you've got a healthy amount of equity in just the IPs without needing to use your own home. There might be some scope for improvement in lending structure. I do think that some diversification is necessary as a risk management tool.

 

[Redom]

Its a little difficult to give you accurate advice without more information as to the lender your moving to and your goals.

I would agree that 8ish loans with one lender is far too many if the loan size is eclipsing 3 million+, although this is partly dependant on the size of your income. If you're earning millions a year and planning on aggressively purchasing in the future with other lenders, it may become more reasonable as you'll be spread across multiple institutions soon. Nonetheless, concentration risk is an issue here.

You may want to explore the potential to just top up with the institutions you're currently with. If ducks line up, its cheaper quicker and likely to be more convenient process - although the brokers payday would be far less and the time to do multiple applications through different institutions and multiple settlements is likely to be far greater.

If you do go with the outlined path - ensure you read the security section of your loan documents very very clearly - its quite likely that you'll end up crossed and that could present serious problems down the track with 8 securities.

Cheers,
Redom

 

[MIW]

Thank you for the replies so far, as I agree with the comments above.
Since I have been advised from the start never to cross or give ONE lender ALL I couldn't agree more.
I have sent email to the broker requesting the reasoning, and I presume the top ups required much more work for the broker?
The only reason for giving PPOR is to see what equity we can pull out, but you are right the IPs self maintain themselves, so I just require to pull out equity (as buffers or if we wish to invest again) and set 1 offset account so the surplus can be placed there.
Perhaps, being open to the broker has been my mistake by not being clear enough what we wished to achieve, although I did mention my concerns that I mentioned to you above.
By the way it was suggested CBA lender...

 

[Jess Peletier]

Thank you for the replies so far, as I agree with the comments above.
Since I have been advised from the start never to cross or give ONE lender ALL I couldn't agree more.
I have sent email to the broker requesting the reasoning, and I presume the top ups required much more work for the broker?
The only reason for giving PPOR is to see what equity we can pull out, but you are right the IPs self maintain themselves, so I just require to pull out equity (as buffers or if we wish to invest again) and set 1 offset account so the surplus can be placed there.
Perhaps, being open to the broker has been my mistake by not being clear enough what we wished to achieve, although I did mention my concerns that I mentioned to you above.
By the way it was suggested CBA lender...

I'm thinking putting them all with one bank, in one loan, all x-coll sounds like a very easy way for your broker to make a lot of money with next to no effort.

I can think of zero other reasons to take that approach.

I agree with Peter, keep your home out of it. With so much equity it's unlikely you'll need it and if you do you can always wait till the time comes.

There may be no need to refi out of your existing lenders at all - just access the equity of each and put it into one or more offset accounts. A full assessment with a good broker may be in order, as your current one seems to have no concept of appropriate risk management.

 

[Terry_w]

It?s a very bad move have any loans at a bank in which you have business accounts in personal names or related companies etc. If the business starts to go bad the bank will know this and take evasive action, possibly calling in loans etc. If business is with a bank on its own you will have much longer to take evasive action on your own terms, selectively selling etc.

 

[Marty McDonald]

The broker needs to put a bit more effort into it than that! It is the least best way to proceed. How you have it now is probably ideal apart from maybe the rates you are on if it they were set up a little while ago. These can often be negotiated down especially if also doing a slight restructure or two. Seek another opinion please.

 

[MIW]

It?s a very bad move have any loans at a bank in which you have business accounts in personal names or related companies etc. If the business starts to go bad the bank will know this and take evasive action, possibly calling in loans etc. If business is with a bank on its own you will have much longer to take evasive action on your own terms, selectively selling etc.

A very good point, as no one has a crystal ball what can happen in the future. Thanks Terry.

 

[MIW]

The broker needs to put a bit more effort into it than that! It is the least best way to proceed. How you have it now is probably ideal apart from maybe the rates you are on if it they were set up a little while ago. These can often be negotiated down especially if also doing a slight restructure or two. Seek another opinion please.

Thanks Marty, I think you are spot on, we are after some offset account and to top up our IPs loans, can be refinanced if the solution is better and justified.
As I mentioned I am not after maximum Loan top up, and I don't mind paying higher interest rate, as long as the risk management and the structure favours our situation.
This was the case few years back when 2 IPs were refinanced and 1 IP was now used as security for the two loans. The title on the 2nd IP was refinanced to pull out 80%. It was probably possible since they were all stand alone loans.

 

[sash]

Be very wary with the CBA...in my opinion they are becoming increasingly investor unfriendly....

Here are my reasons for this assessment:

1. They will not negotiate their variable rates....today they only passed on 20 basis points after the rate cut under the guise of looking after people with deposits. Now that is a joke!

2. Their fixed rates are among the worst.

3. On revaluations they are among the worst for equity draw downs. I can't prove it but they seem to be coaching their so called independent valuers. Surprising when the vals come in you will only get 50k in equity out..do not expect to get thousands. Go to Westpac and SunCorp who are far fairer.

4. Their culture as a retail bank is increasingly very aggressive - they set high targets and push their staff. I believe this drives poor behaviours within the bank. Just look at the recent Financial Planning ****-ups, Storm..will housing loan repossessions be next. They prefer to give money to newbie investors and first home buyers ....

5. Watch out if you ever get into trouble...despite them telling you that they are there to help they will not. My friends wanted a temporary reprieve in paying a loan...despite my advice of not talking to CBA they did worst mistake they made. The dept which supposedly assists people were worse than Nazis!

Some of brokers on this forum might disagree...but I have am looking to move my portfolio from the CBA after 20 years....I have had many debates with this bank over the years...and I at the end of my tether....C.B.A should stand for Crappy Bank of A$$holes. Their staff attitudes are terrible...and in my opinion lack empathy and are poorly trained. If they do not have a computer screen in front of them they will struggle to process a loan.

Thank you for the replies so far, as I agree with the comments above.
Since I have been advised from the start never to cross or give ONE lender ALL I couldn't agree more.
I have sent email to the broker requesting the reasoning, and I presume the top ups required much more work for the broker?
The only reason for giving PPOR is to see what equity we can pull out, but you are right the IPs self maintain themselves, so I just require to pull out equity (as buffers or if we wish to invest again) and set 1 offset account so the surplus can be placed there.
Perhaps, being open to the broker has been my mistake by not being clear enough what we wished to achieve, although I did mention my concerns that I mentioned to you above.
By the way it was suggested CBA lender...

 

[Terry_w]

Some of brokers on this forum might disagree...

C.B.A should stand for Crappy Bank of A$$holes.

Some may agree. On both counts

 

[Redom]

3. On revaluations they are among the worst for equity draw downs. I can't prove it but they seem to be coaching their so called independent valuers. Surprising when the vals come in you will only get 50k in equity out..do not expect to get thousands. Go to Westpac and SunCorp who are far fairer.

Interesting Sash, thanks for sharing.

Regarding the equity release - from an alternate perspective, their use of AVM valuations for sub 80% lending is pretty handy when trying to release equity. Westpac indeed are also good in this space. I'm finding this very handy for Sydney home owners whose values are under a mill right now.

 

[Rolf Latham]

Concentration risk would be a concern for us over 1.5 mill to 2 mill unless the total portfolio size was 7 mill or more, OR there was a specific reason as to why that lender was a an ideal fit ( or only fit),

On LVRS >80, max exp per lender falls to as low as 700is so as to get under DUAs with the lenders

Those of us old enough, and around long enough in the industry dont work with " she will be right mate" because our clients' experiences.

There are reasons why we recommend 2 or 3 times the amount of work for the broker team in some circumstances than broker x or banker y, and its not for the immediate financial benefit of our team.........................

ta
rolf

 

[Rolf Latham]

Be very wary with the CBA...in my opinion they are becoming increasingly investor unfriendly....
Some of brokers on this forum might disagree...but I have am looking to move my portfolio from the CBA after 20 years....I have had many debates with this bank over the years...and I at the end of my tether.... Their staff attitudes are terrible...and in my opinion lack empathy and are poorly trained. If they do not have a computer screen in front of them they will struggle to process a loan.

A true personal and specific experience Im sure.

Not mine, nor our clients experience generally.

I find our credit peops at CBA to be very very good, and the post credit team to be one of the best in the business.

Of late there have been some volume related issues for sure, but all lenders dont want to gear up for this temporary spurt, with one major looking lke they are back to using "backpackers" for pre assessement work.

As in all things, stuff changes, and lenders that are doing well for a while eventually are outclassed by someone else.

The good thing for you Sash is that you can choose and move.

ta
rolf

 

[Mick C]

Hi,
It's my first post here so I hope all knowledgeable brokers reply, thanks.
I am trying to pull out maximum equity from our loans and to set up at least 1 Offset account for the surplus cash from IPs. DO any of you do it? I realise this would be a very general overview but I am more after the right structure, rather than most equity, if that makes sense.
The worry is current broker, recommends providing PPOR (no loan) and all 6 or 7 joint name IPs to one lender. In addition, it is to be the same lender we have all our personal and business accounts with?

^ dont do that....your pricing from 5-6M and 2-3M is almost the same...give or take 0.05% -0.10% off the rate...which sounds like a lot but placing all your loans with one lender ( esp your business bank) will have the following issues that i can see

- Reduce equity amount
- very hard to "grow a portfolio and take out equity later"
- Even if it's a BIg 4 bank...at $3M+ that lenders DUA is gonna be very weak
- Default risk
- Poor planning

You really need to sit down with your broker and plan it out..you have close to $240k in equity...+ given your portfolio size + self employed ...your probably planning on buying more or growing your business...both requires absolute pat down good planning.

1. Keep all Loans uncross
2. Only PPOR needs offset
3. Spread the loan to 3 lenders...use the hardiest one first OR the one with the lowest equity and move out from there.
4. Keep a good spread of " back end lender with good servicing last "
5. Understand your goal for the next 3-5 years.

Be very wary with the CBA...in my opinion they are becoming increasingly investor unfriendly....


Some of brokers on this forum might disagree...but I have am looking to move my portfolio from the CBA after 20 years....I have had many debates with this bank over the years...and I at the end of my tether....C.B.A should stand for Crappy Bank of A$$holes. Their staff attitudes are terrible...and in my opinion lack empathy and are poorly trained. If they do not have a computer screen in front of them they will struggle to process a loan.

Understand your frustration...but like all banks you have your good experience and bad experience....the outcome all comes down to the "ppl" you deal with.

talk to a crow of investors...you probably get a handful that will hate CBA or any other bank at any given time...either cos they disagree with their valuation/rate/service or what ever it might have been...All comes down to the People.

Personally i find CBA to be one of the top 5 investors friendly banks, our office uses CBA for certain policy and it fits a large range of investors.

 

[MIW]

Concentration risk would be a concern for us over 1.5 mill to 2 mill unless the total portfolio size was 7 mill or more, OR there was a specific reason as to why that lender was a an ideal fit ( or only fit),

On LVRS >80, max exp per lender falls to as low as 700is so as to get under DUAs with the lenders

Those of us old enough, and around long enough in the industry dont work with " she will be right mate" because our clients' experiences.

There are reasons why we recommend 2 or 3 times the amount of work for the broker team in some circumstances than broker x or banker y, and its not for the immediate financial benefit of our team.........................

ta
rolf

Hi Rolf,

But my unencumbered house is worth > $2mill so is that concentrated risk? Also, as pointed out I have additional investments in other entities, SMSF, and trust. So total portfolio is now > 10 mill (I hate disclosing these details) with PPOR with LVR around 30%, or 40% without PPOR. So no need to worry for LVRS>80, I am very conservative. I basically have a self sustained portfolio.
In addition I have preapproval for $1mill in SMSF for next purchase, but after 1auction, my mouth dropped, when the property sold for about $265K more than similar IP I bought and renovated 10 months ago, it is just crazy market in Sydney!

I think my situation is more complex than most, it took me 3 days to copy and supply the paperwork, so I am thinking this may be my last refinance, so that's why I would like to pull out most equity, as rules for investor's are changing, plus for any unforseen circumstances or for choice in the future!

The problem with this is that current broker seems busy, well I am not surprised with the Sydney market booming even more, rates down, and APRA making changes!

I think I am at a loss realising I have no idea how to approach this process, what should be refinanced when and so on....and the broker has no time to communicate that to me, I think?
But thanks for all info, I told him I will only give my PPOR to CBA only, the rest will be toped up or refinanced with others.
Just out of curiosity, what in your opinion would be reasonable loan pull out in % terms out from PPOR? Say the house was $2 mill would you give them the title for $1 mill 50% or would you take no less than say 70%?

 

[MIW]

Be very wary with the CBA...in my opinion they are becoming increasingly investor unfriendly....

Hi Sash,

Thanks for the advice, it is noted, but hard to decide. I have never had any CBA IP loans, only personal accounts and business banking, so I may give them a go for 1 only, the PPOR. The valuator said, most CBA loans are against PPOR rather than investors?
My dear friend is Exec. Mgr in CBA, I know that means nothing, these are corporations, goliaths, with just people working for them. Her hubby a treasurer in another bank, so lovely people but they just work for these institutions, right?
No need to fix loans, as portfolio is self sustaining, but I would like to approach the concept of equity draw downs down the line...if possible.
So what % of equity draw down, would you be comfortable to receive say from $2 Mill PPOR, is 50% ok, or lower or nothing less than 70-80%? I didn't give much thought to that?