Serviceability limit questions

[Propertygirl1]

Hi everyone

Lately I've been reading about utilising specific lenders during the early stages of my investment and then saving those with more aggressive serviceability calculators for the later stages.

I just have a couple of questions regarding this.

1) How do you define at which stage you need to move to a different more aggressive lender? I currently have about 1.5m in property, with 1m in loans and serviceability of approx. 900k with CBA.

Whilst 900k is substantial for me at this stage, when should I start paying more attention to this?

2) I'm still getting my head around how this actually works... when using more aggressive lenders, do I leave my current debt with my current lender? Does the new lender then take debt from other lenders at actual rates rather than a benchmark rate?

I also understand that the current environment is changing for investors so this is all subject to change but I guess it's still beneficial to know how it works at least for the moment!

Thanks all

 

[Gockie]

Work with a good broker, there are many on this forum. A great broker will guide you on which lender to use for the circumstance you are in, based on your portfolio and stage of finance and investing. While it's great you have the concepts, I'd leave the actual strategy of which lender to use and when, to them. By the way, even just being aware of this puts you well ahead of the average investor, so I believe there's a good chance you will do well.

 

[Brady]

You mention aggressive lenders, but are going to start aggressively acquiring properties? What is your plan in the next 2-5, 5-10years.

 

[Rolf Latham]

Lately I've been reading about utilising specific lenders during the early stages of my investment and then saving those with more aggressive serviceability calculators for the later stages.

its that simple, but not............

This method of basic structuring is a good basic rule of thumb for more research.

Much depends on your resources, the LVR, existing LMI exposure, your risk profile, your brokers risk tolerance and experience.

Its simple, but not obvious, for it were obvious there would be software to model it, but the fluffy fuzzy logic isnt simple to map for a business process.

A specific two way discussion with your credit adviser on what you want to do, when you want to do it, and why will usually provide some good outcomes

ta
rolf

 

[Redom]

As Rolf mentioned, its not as simple as stated and there are other factors to consider (to name a few: flexibility to access equity, interest only extensions, your risk appetite).

Nonetheless, looking at it solely from a borrowing power maximisation point of view, there are a few lenders out there that are more generous in the borrowing power department to those that already have large mortgage debt. Noting that, it MAY make sense to exhaust the conservative lenders first and then move to these lenders.

However, you will also need to consider the 'deposits' side of lending, borrowing power in isolation is only part the story - if relying on equity to continue investing, may need to map out your ability to release equity as you don't want to be snookered (especially if in LMI territory).

Those with big mortgages (investors with multiple properties) will have their mortgage repayment as the biggest item on the expense side of their financials. Most lenders will apply an artificial buffer over your actual repayment of your mortgages, making the largest expense even greater. If looking to maximise borrowing power only, it may make sense to leave some of these lenders to later in the portfolio.

I wrote a thread on how it works a while ago that may be of some use: http://somersoft.com/forums/showthread.php?p=1282698#post1282698

Continually switching lenders is a very big part to growing a large portfolio. Further still, ordering those lenders can also stretch out your borrowing power further.

Cheers,
Redom

 

[albanga]

My question is, is this whole "save up your sleeve" lenders even applicable anymore?
The ace up the sleeve AMP just got turned almost completely 180 into pretty much a conservative lender in the space of a month.

I know you can only plan for what you know but none the less for an investment broker like you all are on SS it must be near impossible to map out as far as even a 3 year plan in the current lending environment.

 

[Jamie M]

I know you can only plan for what you know but none the less for an investment broker like you all are on SS it must be near impossible to map out as far as even a 3 year plan in the current lending environment.

Correct - there's only so much control you can have. For those relying on AMP being a last resort lender.....that's not an option any more....and it's not something many brokers would have foreseen when mapping out a strategy for their clients. Now we're just waiting on updates from other "generous" servicing lenders about the tightening of their calculators.

Cheers

Jamie

 

[tobe]

lenders change their policies regularly, clients change their financial circumstances, and the wider economic environment changes along with tax policy etc etc.

A good broker will make the best judgement along with a detailed investigation of a clients needs. If the client is looking to make multiple investment purchases, its still worthwhile saving the more generous lenders till last. Yes, they aren't as generous as they once were, or they are different lenders than they once were, but the mapping strategy is the same.

Brokers should be able to give clients answers to questions they don't know to ask, such as how different types of lenders performed during the GFC, which lenders have easier 'roll over' policies etc so they can make an informed decision on which lender to use when.

 

[Redom]

I agree that its impossible to have certainty over lending policy in future - as brokers we can make plans but they will always be dependent on some assumptions.

Nonetheless, there can be some foresight applied. In current circumstances, taking equity out is probably best done sooner rather than later. Also there may be some obvious low hanging fruit changes to some policies that are quite predictable (Macquarie's refreshing calculator for one).

Cheers,
Redom

 

[MsAli]

Definitely comes down to choosing the right and good broker. Make sure it's specific advice to your situation and no assumptions. Assumptions can significantly impact your decisions. Also make sure that it's all planned well with them as opposed to taking the word for future portfolio growth. Important because as an investor you're always thinking of the next deal and the one after that.

Most importantly trust your gut instinct.

 

[Rolf Latham]

With Clarity comes certainty

All the planning in the world wont help someone that cant define a goal and a reason for chasing the goal

Like in the road of driving a car from A to B , the road of life, and the road of investing stuff changes, so a rigid attitude doesnt serve.

A really good example is "never sell".............. there are plenty of times where that is silly dogmatic advice


ta
rolf

 

[Richard Feynman]

With Clarity comes certainty

All the planning in the world wont help someone that cant define a goal and a reason for chasing the goal

Like in the road of driving a car from A to B , the road of life, and the road of investing stuff changes, so a rigid attitude doesnt serve.

A really good example is "never sell".............. there are plenty of times where that is silly dogmatic advice


ta
rolf

Quoted for truth.