APRA reaches out to major banks as housing credit picks up
The prudential regulator has asked the boards of major banks to confirm they’re maintaining a strong focus on lending ...
A smart property investor will probably refinance to another lender at least once on their investment journey to secure the best loan, so it’s a good idea to be prepared at all times in order to best seize an opportunity when it comes up. If you're looking to refinance, here are some tips.
Getting a lower rate loan can save you a fortune over time, making just as big a difference to your bottom line as securing higher rent, but just like attracting a new, higher-rent tenant, some work is required, especially in this era of heightened concern about responsible lending.
Here are my top tips to make refinancing as quick and pain free as possible:
It takes extensive preparation to research the market, find a property, negotiate to buy and finance your property or property portfolio. Now that you own it, don’t drop the ball!
Maintain your success by keeping up-to-date legal records about your portfolio.
A portfolio spreadsheet can be extremely helpful for lenders and should include information relevant to the lender.
In addition to basic property data such as address, value and rental the spreadsheet should also include:
Be well-informed about conditions in the market where you own your property so you have a realistic view about the likely valuation when you apply to refinance.
This will avoid the frustration of going through the refinance process only to find that you have to pay a higher rate or Lender’s Mortgage Insurance because you have less equity than you thought.
Most property investors also own a home and have a home loan. Home loans are considered lower risk so when you package yours with your investor loan/s it will qualify you for a lower rate overall with some lenders.
Packaging does not mean cross-collateralising. Most lenders prefer to keep all properties separate from each other if possible, so you are not securing your investment loan against your home.
This makes it easier for you to access equity in each property in future without having to revalue every property in the portfolio. You can also sell the property without affecting the other properties in the portfolio.
If you self-manage your investment properties, ensure you have clear evidence of your rental income. Income received cash-in-hand and not deposited in a bank won’t be accepted by most lenders.
You also need to ensure that you have a current lease agreement in place and not just an informal verbal agreement.
If you want to access equity in a property make sure you can provide a specific purpose for the funds before you approach your lender. Don’t be afraid to discuss your plans and goals with your lender – they want to help.
If your plan involves purchasing another property within the next 12 months or any other reasonable purpose your lender can generally help with that. If you don’t want to disclose your purpose, it will be much harder to get approval.
These are my top tips for making refinancing easy. Mostly, they boil down to keeping good records and being transparent, so your lender can work with you.
If you follow this advice, you will be well positioned to enjoy the best value finance through the life of your investment.