It’s important to split your lending, says John Bolton, and now’s a great time to consider refinancing.
31 October 2020
There are numerous reasons to review your mortgages and make sure you still have the right overall solution for your lending. As we often discuss – it is important to have more than one lender in the mix. We continue to encounter investors who are surprised when they sell a property and the bank takes all of the proceeds of sale.
Having Your Lending With More Than One Bank Gives You More Control
This is even more important for the older generation because banks start to get nervous when it comes to lending to “senior” investors. They are preoccupied with serviceability and apprehensive about the reliance on rental income.
They prefer to make sure the debt can be paid off over shorter terms. Splitting your lending across banks also means that when it comes to selling a property, you’ll have more control over the process. Additionally, it means that if one bank forces you back on to principle and interest repayments, that doesn’t impact your whole portfolio.
So Why Move Your Lending Around?
One of the most frequent and beneficial reasons to refinance is to reset the dial on interest-only. Banks are still notoriously difficult to deal with when it comes to staying on interest-only after five years and as the remaining term of a loan diminishes. By refinancing, you reset the clock.
‘We are still managing to get cash backs for smaller property investors, and in some cases larger ones’
From a servicing perspective, if you are still wanting to buy more properties, then resetting the clock also improves how you pass bank servicing calculations. Many lenders will test the ability to service a loan against their test rates (usually around 6.50% principal and interest) over the remaining term of your loans.
Credit And Product Differences Between Lenders
For example, ASB will only do rental properties on a 25-year term. The availability and size of revolving credits can be limited depending on the bank, and only BNZ, Westpac and Kiwibank offer offset mortgages which can be useful if you want to have big undrawn cash flow facilities.
Cash backs depend on how big your mortgage portfolio is, whether you have any commercial properties in the mix, and which banks you are with. Commercially managed clients typically won’t get cash backs.
We are still managing to get cash backs for smaller property investors, and in some cases larger ones. I recently refinanced some lending for some large-scale investors and still managed to receive standard residential rates and a 0.60% cash back. Not all lenders are taking the same approach and the pricing varied significantly between them. It took a bit of time, but we got there.
One investor was at the end of their five-year interest-only term and buying a new property so we refinanced an existing property to form the deposit, whilst at the same time resetting the dial. Another investor was wanting to start a development and had a need to free up some cash from a property sale next year. We separated that property’s lending so that the cash can now be released next year when it is sold.
Another of the investors had purchased a property using a non-bank because they previously didn’t pass the standard bank servicing criteria. With lower servicing rates from the non-bank, they now pass, and we managed to refinance the property into a bank and save him $15,000 in interest per year.
These examples show that every now and then it’s worth digging into your portfolio to make sure it’s still efficient and not creating any future traps. It costs nothing to get a Squirrel mortgage adviser to review your current situation. Get in touch with the team by calling 0800 21 22 30.