will anyone finance this deal?

[rie]

hi everyone,
my parents are faced with a dilemma at the moment and i was wondering if anyone out there may have some ideas/suggestions.
the scenario...
they are currently going thru the process of selling their IP and want to pay the monies into their PPOR. the monies from the IP sale will not cover the balance of PPOR so they are wanting to refinance which will leave them withan approx 80k loan. they want to pay P&I over 10 yrs which should see the loan paid out. they are happy to stay with the anz as they have banked with them for many years. however with dad being self employed for the last 2 years and mum working part time bringing in about 15k the bank says they can not service the loan. i don't believe mum's income has been taken into account as yet. dad's accountant is not wanting to show he is making to much out of the business yet so where to from here? they have a great relationship with their personal banker and she is working hard for them but beacuse the deal is under 250K it has to be referred to melb and some one who doesn't know them or their situation. and to complicate things they live in a very small rural town about an hour and a half from bris. sorry about the length of the post i hope someone might be able to offer some suggestions. thanks in advance.
rie

 

[always_learning]

Talk with a friendly and helpfull mortgage broker, ( like Rolf)!!!!

There are so many lending options these days from traditional banks, to loc-doc products, I am sure an independant broker can look at you situation and give recommend options....AND YOU HAVE NOTHING TO LOOSE EXCEPT YOUR TIME!

 

[Mike]

Hi Rie,

Why is it necessary to refinance at all? If your parents PPOR loan is P&I already then paying a lump sum (proceeds of IP sale after CGT) towards the PPOR loan will effectively reduce the term of the loan anyway if your parents maintain their current repayments.

If the lump sum reduces the principal and, therefore, the repayments because of the reduced interest component then the current loan term is unchanged.

It seems to me that your parents are happy to reduce the term of the loan rather than keep the term as is and reduce the repayments, therefore, all they need to do is pay a lump sum off the principal and tell the bank they will maintain their current repayments until the rest of the principal is paid off which should be in about 10 years if that is what they were aiming for as the refinance target suggests.

I'm surprised the personal banker hasn't suggested this course of action unless I have missed something important or obvious.

Regards, Mike

 

[Rolf Latham]

Hi Rie

Like Mike Im confused but then I bet that the 2 properties are cross collateralised possibly on a fixed rate loan.

Please provide us some numbers, Im sure we an all help you out here.

The ANZ also has a no docs product where the income doesnt matter.

ta

rolf

 

[rie]

hi mike and rolf, thanks for your replies
sorry about the confusion. i myself am a little confused too!

i will attempt to explain things a little better and also correct my mistakes from my last post, here goes...in my orginal post i said IP, however this property was mum and dad's original PPOR (no mortgage, will call this walker st for convenience) up until approx 3 years ago. they purchased their 2nd property (gregors creek rd IO loan) in 1998 and put tenants in it. they then moved from walker street in 2000 to gregors creek road and made it their PPOR (still IO). they put tenants in walker street and it since been sold, due to settle on the 30th of this month. this is why they want to pay all monies from sale of walker st off gregors creek rd and refinace to a P&I. hence lowers weekly repayments than they would be paying if they were to continue along at the same rate. anyway a few figures for you.
Walker st sold for 167K will get approx 158k in the hand
gregors creek road amount owing 227K
mum was hoping to pay off her outstanding balance on her credit card
and perhaps park 10k in an offset account to reduce interest.
hopefully this is hanging together a little better than last post.
look forward to your replies.
rie

 

[Mike]

Hi Rie,

Thanks for the extra info. Makes sense now. You still forgot to tell us the term of the interest-only loan, though.

Well, the answer to your dilemma is quite simple really. Put the proceeds of the sale ($158K) in the offset account so the interest payments are debited from that account. The offset account is also earning some interest at the same rate as the PPOR and lowers the interest repayments. Now, wait until the term of the IO loan expires when it will automatically default to P&I. No application hoops to jump through.

Now, once the loan is P&I, do as I said in my first post - pay a lump sum toward the principal and either continue paying a reduced monthly repayment or increase the repayments to suit your combined income at the time if you want to pay the rest of the principal down sooner rather than later.

Regards, Mike

 

[rie]

hi mike,
thanks for your prompt reply. well it sounds simple enough we'll have to see how it goes. anyway the term of the IO loan was a maximum 9 years, start date 12/07/99 hence they are into year 5. apparently the bank does a review each year and decides whether to continue the arrangement or not! they did not recieve a letter of approval this year hence the guy in melb trying to force them into P&I on the orginal loan amount of 230K and to be paid off in the remaining term of the original loan which equates to approx 4 and a bit years. which they will find a struggle to meet the repayments should this arrangement be the one they are forced into. the bank johnny in melb hasn't/will not even take into account the monies coming from the sale of walker street. not a good scenario for mum and dad as they plan to retire at gregors creek road.
thanks again for your response it is a bonus to get feedback so promptly

i look forward to your next post.
rie

 

[Mike]

Crikey Rie, your story is beginning to read like a dime novel with new surprises and twists with every post. Any other surprises? Hope so. It sure is entertaining.

Let me get this right...according to you, the bank says your parents cannot service the 80k P&I loan over 10 yrs. Yet you say the bank is trying to force them into P&I on the orginal loan amount of 230K to be paid in 4 years. Rie, could you explain this apparent contradiction, please? If the bank feels they are unable to service the smaller loan how do they expect them to service the 230K loan?

Rie, I think it's about time your parents called the ANZ National Customer Liaison Unit and sprinkled the conversation with a few four-letter words including ABIO which is Australian Banking Industry Ombudsmen. Their website is http://www.abio.org.au/ABIOWeb/abiowebsite.nsf

The ANZ Customer Relations contact details are:

State Phone Number: N/A
Interstate Phone Number: 1800 988 899
Fax Number: 03 9273 4061
Officer / Department: National Customer Liaison Unit
Address For Written Complaints:
Ms Judith Swan
National Manager Customer Liaison
100 Queen Street
MELBOURNE 3000

The Banking Ombudsman is a second tier complaint mechanism, which must be preceded by an initial application to the internal dispute resolution procedures of the bank. It is worth noting that the Ombudsman has an impressive record of resolving disputes in more than 80% of cases without the need for investigations. While your parents are applying some pressure of their own let's consider what other options are available to them.

It is clear that serviceability is the main issue concerning the bank. It appears that your parents income is reduced without the rental income of the IP which they are selling. It seems that the bank will not recognise the $158K as income for the purposes of re-financing. This brings us back to Rolf's suggestion of re-financing to a lo-doc loan where the income is less of an issue. The interest rate may be slightly higher, maybe 0.5%, but worth it to solve the problem. The other option is to convert the $158K or some of it into an income stream like an annuity, cashbond or LOC and use this income to maintain the current loan arrangement until the 9 year term expires and converts automatically to P&I.

Rolf comments on these strategies in the following post:http://www.somersoft.com/forums/showthread.php?postid=46857#post46857

Good luck with whatever you choose.

Regards, Mike

apparently the bank does a review each year and decides whether to continue the arrangement or not!

I haven't heard this before. I have a couple of IO loans with the ANZ and don't receive yearly review letters. What is this all about, Rolf?

 

[Rolf Latham]

HI Mike

The bank does NOT care in the least as to the parents ability to repay the loan from the parents point of view.

Im not picking on any one lender in particular but most of them are ageist. A few are not.

This crappy attitude is soooooooo clearly reflected in the reduced loan term scenario for anyone over 50.

I mean what in true commercial reality is going to work better with less REAL risk to the bank.

A 15 year loan where the borrowers struggle like hell for the first 5 years, and are likely to fall over in the first 18 months, OR

A 30 year loan, where they can easily make the payments till 65, and can probably continue them because they are now small in real terms. 15 years worth of cap growth and the security is now worth 3 to 4 times as much, with an effective LVR of 25 %.

As a person that was lending my money, Id take option 2 any day.

Rie, if the ANZ wont play ball, take your mum and dads bat and stumps and go to another lender via a broker.

Ta

rolf

 

[rie]

hi mike and rolf,
thanks for your responses, yes this story does have a few twists and turns!
mike as you said...
"Let me get this right...according to you, the bank says your parents cannot service the 80k P&I loan over 10 yrs. Yet you say the bank is trying to force them into P&I on the orginal loan amount of 230K to be paid in 4 years. Rie, could you explain this apparent contradiction, please? If the bank feels they are unable to service the smaller loan how do they expect them to service the 230K loan?"
this is the ridiculous situation they are dealing with, as i said previously their personal banker has said on many occassions if it were up to her the new arrangement would be in place asap. but the "shiny bottom" in melb won't have it. realistically there is no way mum and dad would be able to pay out the original amount of 230k in 4 years. thanks for the ABIO contact numbers this may be our next port of call.
rolf,
thanks for your input also. i am inclined to agree with you about taking our bat and ball and playing else where. i think your point regarding age is very pertinent. both mum and dad are over 50, but in very good health and running and small business quite effectively. my only other question is , if they go to another bank and use a low/no doc facility will their postcode be a problem. as i said in a previous post they reside in a very small rural town approx 2000 people in qld. thnaks guys.
rie

 

[rie]

hey guys,
this just gets better!!!! mum has just gotten off the phone from her persona banker in (alice springs), as mentioned previously the loan had been referred to melb because it was under 250K. it now seems that the bank reverted the IO loan to P&I back in nov of 02 (when it went to melb) and they say mum and dad are now in arrears to the tune of 16K! the interesting thing is however, not once did mum and dad receive any paper work regarding the change in repayments. they have not received any notification of arrears since the so called change over. mum is a paperwork hoarder and can not find anything to the effect of a change in status. the bastards are really getting her down now
mike; she is starting to throw a few four letter words around now including ABIO.
rolf; you may get a call or fax from mum re another institute
ahhh the plot thickens...
i'll let you know how it goes.
rie

 

[Mike]

Hi Rie,

Can I buy the movie rights?! Fair dinkum...the banks make such a big thing about serviceability when you apply for a loan but then don't seem to care whether you are able to meet repayments before changing your status from IO to P&I. The Brits over here have a saying - "I'm gobsmacked!".

A couple of things I'd like to know is:

Are they also applying penalty interest at this stage? I believe 10% is normal. If so, dispute resolution procedures must be started to recover that money. Find out whether your account can be frozen during the dispute resolution period.

Are the current principal repayments based on a 4 year term or 25 year term? If a 4 year term...

Are they willing to refinance to a normal 10, 15 or 25 year P&I loan if you put the $158K toward the principal? If not, and your account continues to get deeper into arrears you must change lenders immediately because the dispute resolution procedure could take up to 6 months or more with the outcome uncertain.

I'll leave it there as I need to go and buy some more popcorn.

Regards, Mike

PS Quote from ABIO website:

We encourage you to try to resolve your dispute with your financial service provider before lodging a dispute with us. You may have already tried to do this by discussing the matter with your branch or a particular department of the financial institution. However, it is our experience that a dispute which appears to be at deadlock may often be resolved when it is referred to the customer relations department which is responsible for dealing with customer complaints.

Rie, I advise your parents to immediately contact the ANZ National Customer Liaison Unit to see whether the account can be frozen during the dispute period.

 

[Yourmortgage2t]

Hi

Your parents need to realise that this not personal, but business.


If the ANZ won't or can't offer them a loan that is suitable to their needs, they need to talk to mortgage broker, who can take the time to unravel their situation and solve their problem.

They may need to get a low doc loan.

But before a glib answer can made, it would be wise to talk and properly understand what their needs and future plans are.

Good Luck

Regards