Aaron Whybrow explains when to refinance your entire portfolio versus parts of it. He covers how lenders assess your ability to repay using buffer rates around 7.25% to 8%, and why a mortgage broker can find lenders whose assessment methods make deals work when you're juggling multiple properties.
Questions this video answers
7.25%
~8%
An example where one bank takes a $1,000 repayment as $1,000 and another lender may assess it as $1,200 or more.
May 10, 2018
Refinancing everything or just doing what we need to do to get through. It's Aaron here just wanted to go through a little bit of detail related to how we can get the best out of your serviceability when you have a multi portfolio of investment properties. A couple of things here is that there are reasons why you would want to rejig everything and there's reasons why you wouldn't. A couple of things we need to know when we're doing this. We need to know what your goal is. What are you trying to do? One thing that I'm finding a little bit more common is one option that people take is they want to purchase something else. Okay, so they might want to move home, they might not want to have a bridging loan, they may want to buy another investment property, they may want to buy a car. And number two is they may just need a little bit of cash for items around the house. So how do we deal with this? Couple of things. Some lenders will obviously put a buffer rate and the floor rate with the buffer rate is around 7.25. So most mainstream lenders, even though you would pay 4% for example, they will assess whether you can get the money at 7.25%. Some lenders go even further and go this is that bank's debt. And then they'll go to a rate of around 8% for other banks debts. What that does is it moves the new monies cheaper than the existing money that you have. The problem with this scenario is that this change of 0.75 can make or break and that can run into a bit of trouble. One thing that people would do, they may want to refinance the whole lot so that all the debt's back here and it might pass. The trick here is when a broker is looking at the situation and a really good one is that they go, okay, well this is not suiting the client and is there another bank that would suit the client better? So if we look at another bank, so option two, we might go new money at 7.25. Remember that this is just an assessment rate of the money, not the rate that you would pay. So 7.25. The next thing they do is they may consider all the other debts at 725. So therefore we go to a different bank and we may get to the point that it's not breaking anymore, it's actually making the deal possible. Now sometimes this has the same thing. This may make the deal or break the deal. And if that makes or breaks the deal, we may have to go even further and go to another lender. And these other lenders do something slightly different. We do restrict ourselves with what interest rate you may Pay. You may pay 4, 2 instead of 4% or depending on the security, if it's investor or owner occupied. But what they do is they may take 7.25 as the floor rate for the new money. Okay, Then your existing debt, they may take the repayment. Now what happens when you take the repayment versus the other two options at 7 to quarter percent or 8%? When you take the repayment and even the repayment plus a buffer on the repayment, it can significantly increase the ability to service a loan. So one example, if Your repayment is $1,000, one bank may take it as $1,000, another lender may take it as $1,200 or more. Now these lenders, there are not many of them around anymore and there are other ways that they deal with the ability to service a loan or not. So for example, you may need to have a minimum of a 20% deposit here to make it work. You may need a 15% deposit plus the stamp duties. So they are out there. The problem is you're going to need a bit more money behind you to be able to make this work. So if we go backwards, if our goal is to get some more money around the house, more cash and you have a multi property portfolio, we can start to leave your lending where it is and move some of the lending into a better servicing environment. Now that's a way to think about when someone tells you I need to refinance everything. It's not necessarily the case. You don't have to totally in the first instance, refinance everything. Now there are going to be circumstances that this option doesn't work and this option doesn't work and there's going to be the need to refinance everything. And the reasons why you might want to do that is that your current lender is high cost or your desire changes and the numbers back it up. Now obviously using a broker like ARW helps you out here with all this information. You get that right up front and I'm actually posting it now free of charge, which is great because you want this information. You need to be empowered as a borrower. Now if you have a story that's similar where you've been asked to refinance everything, please put your story below. If you are a person that is in this area and they need a second opinion, that's me, please feel free to message me. And if you know someone that's having some struggle time trying to get some money apart from their main portfolio, just tag them below so they can see the information and we'll go from there. All right, Have a great day.
