Corinna Fox and Aaron Whybrow walk through a client who wanted to convert their home to a rental. One bank demanded an extra $90,000 in annual income to approve the mortgage. They switched to an alternative lender with a higher rate but more flexible underwriting that factored in rental income and stress-tested the payments at higher rates.
Hi everyone. Welcome. You are here with Corinna Fox and Aaron Wybrow from Diagnostics and Finance. We are jumping on to discuss some deals that we've been working on and listen to a little, I guess, some success stories that we've been able to strategize and resolve for our clients this week. So Aaron talked to me about a deal that you've been working on. What was the client looking to achieve?
Yeah, so a little while ago, prior to the interest rate rises, my client came to me. We wanted to prepare them to buy and upgrade their owner occupied property and then convert their property that they currently had into an investment property. So release some equity for deposits to bolster their cash and then convert their property into an investment property while they bought a new one.
Okay, so in this scenario for this client, have you come across anything that you've become stuck on that has caused an issue or some friction with the lenders? We always come across an issue somewhere that we've got to untangle. So what happened on this deal? So.
We moved them from one major bank to another major bank to get their cash out and then when we went to get the right amount of money for them to purchase in the current market at the right price, when I went back to convert that loan from at the major bank, we found that the numbers didn't work with the changes of interest rate. So to the point that they needed to earn $90,000 extra income to continue going with the major bank. And when they had discussions with them, they were in a particular role that obviously well outside their job was increasing their variability of income by adding rental income in for their current property that they were moving out of. And they were also getting reinstated commissions and bonuses and the normal things that they needed in their job professions. So what we found is that we're able to go to another lender. We didn't need to use any more income to be able to get the right amount of price. But the lender that we had to go to had a slight change of interest rate upwards, which we assess their variability of income that they could manage that as they go forward. They wanted to have not only the current interest rate of what they were going to repay, they needed to have the future one. And they were comfortable with those changes which made them more comfortable to go to the auction after they had a conditional approval to be able to win at that auction.
Okay, so quite a large impact on borrowing based on the change in increasing interest rate market that we're sitting in. But a resolution that was able to be made for them. So what would you say the two or three take home points for this deal? When you're talking to other clients, what would you want them to take home?
From this scenario, there's three things people need to take away. One is understand that you may not be able to go to the current bank you're at to get the money you're at, or we might need to keep you there and then go to another bank. The other one is understand the variability of your income. Are you getting, is there a good amount of rent? Are you adding rent? Are you adding bonuses, commissions? Are you able to earn more money in your business? That variability is going to help you understand where we're going to go and the comfort around the third point, which is understanding the interest rate that you're going to get, then doing the numbers on that to make sure that you can afford it. If you are going to pay a higher interest rate to be able to get the money versus a lower interest rate and you're not going to get the money, understanding your numbers related to that so that you have comfort going forward. And ask us, ask us to do the interest rate at 4%, 4.5%, 5 and a half, 6 and a half. Ask us to do the rates at 8 so that we can make sure that you have those numbers, to be able to do your numbers and make sure you're comfortable and can sleep at night.
I love that. I think, you know, as a broker, we want to find the best resolution for you, but we also want to sleep at night knowing that you can afford what you're getting into. Thank you so much, Aaron, for joining me and jumping in and sharing a success story for the week. We hope that you've taken some great tips from Aaron this morning and if there is anything that you need some assistance with, please feel free to reach out. We would love to chat with you.
