In the introduction to the Refinance example we discussed the fact that the EarlyRetiree's (ER) were interested in refinancing a portion of their investment portfolio as they can see better rates being advertised. Their own bank was not responsive. and they have engaged a mortgage broker. The mortgage broker can use loan qualifier software to compare the current rate of lenders. The mortgage broker has a panel of lenders, we can look at each lender and try to give a score to the lending policy of the lender.
So we start with Adelaide Bank.
We can consider the variable interest rate that Adelaide Bank are offering to be main stream and 0.1% less than what the ER's are paying now. The most economical product seems to be the SmartSaver but it does not allow a change to a fixed rate later without a change of loan type, (and costs presumably). So the product that most suits is the SmartFit.
Next comes fees, generally borrowers are fee sensitive and will ask how much does it cost to set up the new loan? With this lender there are upfront fees and fees for creating the splits and an ongoing fee. Over time the ongoing fee might be more economical than a package fee but the first year will be significant. Also there are costs to change things.
Can the ER's service the loan? This will require reviewing the lender policy. Is Mrs ER's part time position OK? She has been there for 8 months or so and before that was working in a similar industry for many years. Does the lender take into account tax deductions available to a property investor? There are depreciation and interest costs tax deductions available to property investors. Does the lender use the actual interest rate that the borrowers are paying on other loans or are all loans assessed at the serviceability rate? If you have 10 loans at 6.5% but the lender assesses them at 8.5% that is a pretty hefty impost.
Based on the serviceability calculator yes the loan is ok. So for now we can leave Adelaide Bank in the running.
Next in the panel is AMP Banking.
Again this lender is offering a main stream interest rate. There is an one year intro package which we rate as aggressive short term. Our lenders may be responsive to a 0.3% discount to what they are currently paying. Of interest here is the master limit which is a pre approved sum greater than required which is supplied in a Line of Credit. The funds are available when required.
There is an annual professional package fee of $395. On loan setup most of the fees have been waived under a promotional offer.
This lender takes into account tax benefits of being a property investor. I am following up on the amount of rent that it used.
Again this loan appears to be ok in the serviceability calculator. The master limit may be a handy feature.
There are 27 lenders on the Arafura Finance Brokers Panel of Lenders and rather than detail them all here, after a while a picture emerges, some of the lenders will decline to lend to our investors due to serviceability. Different lenders use their own formulas, so while ChoiceLend is interest rate aggressive particularly at the Loan to Valuation ratio they will not lend. The same with Future Financial.
Next comes the refinance loan comparison table, which suitable lender will save the most money for our investors while meeting the needs of the ER's future plans?