I
n this eBook, we will reveal the lesser
known loan strategies successful property
investors are using right now to secure more
funds, more investment opportunities, less
interest rates and build a solid property
portfolio. And what you need to do to be on the
right track to long-term investment success.
Mortgage Corp
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www.mortgagecorp.com.au
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Phone 1300 138 943
2
Limit Credit Card Limits
To Secure More Funds
1
If you are like most Australians, you probably have at least one credit card. Accordingly,
to the Reserve Bank of Australia (RBA), there were over 16.5 million credit cards in
circulation in Australia in June 2016. With Australia’s total credit limit now at a record
high of almost $150.5 billion, this averages to a credit limit of $9,121 for each credit card!
Credit cards are great for tiding us over a cash emergency or for earning reward points,
but…
Did you know your emergency line of credit could actually affect your ability to borrow
and get in the way of getting your next investment property or that house with great
development potential?
You may say, “I don’t have any issues with my credit cards, I always pay off my credit
card on time!”
DID YOU KNOW
Every $1,000 you have on a CREDIT CARD LIMIT will lower your
home loan borrowing capacity by approximately $3,600!
The key words are:
CREDIT CARD
LIMIT
not the amount you owe!
Mortgage Corp
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www.mortgagecorp.com.au
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Phone 1300 138 943
3
Even though you might only owe $2,000 on a $25,000 limit credit card, lenders will still
take the limit of $25,000 into account when assessing your loan. This is because your
limit reflects how much you could go out and spend tomorrow.
Whilst this doesn’t sound like much, if you have a $25,000 credit card limit then you’ve
just lowered your borrowing capacity on your loan by over $95,000 – that’s a lot of
borrowing power LOST!
What does this mean for you?
Well it means that you may not be able to afford that perfect rental property worth
$750,000 with 3 bedrooms, 2 bathrooms and 2 garages. You may have to set your
sights lower on properties worth around $650,000, which may mean either downsizing
in the same suburb to 2 bedrooms, 1 bathroom and 1 garage, or looking further out
from the city.
This can not only hit the amount of rent you receive in the short term, but also affect
your capital growth in the long run!
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
4
A REAL MORTGAGE CORP CLIENT STORY
How eliminating credit cards allowed a client to buy their
first investment property
A Mortgage Corp client, an IT manager with a $100K+ salary who
owns a $750,000 home, asked us recently to help him and his wife
look for an investment loan. They were looking at buying their first
investment property and it was all looking good until we asked – how
many credit cards do you have?
The answer? 3 credit cards for him and his wife with multiple cards
ranging from $18,000, $21,000 and $22,000+ limits. We asked them
WHY!? They simply shrugged their shoulders and said they didn’t use
those cards anyway. The banks kept increasing their limits and they
thought it would be good to have those extra credit cards around
for emergencies…WELL THAT’S $220,000 LESS THEY COULD BORROW
WITH $61,000 IN CREDIT CARD LIMITS!
Thankfully, the broker was our senior mortgage strategist Neil Carstairs
who advised them to cancel the cards they didn’t need, keep only
one credit account with joint access and to lower the limit.
The result? 2 cards sharing a $6,000 credit card limit
Neil put together a strategic loan package and submitted it to
a different bank - not the bank they had the credit card with. He
structured it in a way to not only get the loan they wanted but also in
a way that makes it possible for them to potentially purchase multiple
investments in the future, which is part of their investment goals.
Last month, our client finally bought their 1st investment!
We also advised them that their next step was to get settled into the
new set up and to manage their lifestyle more effectively using the
new credit card arrangement and mortgage offset account to help
reduce the home loan interest more effectively.
Once they get settled in they’ll be off looking for their next investment
in no time!
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
5
DID YOU KNOW
For some loan products, lenders automatically add
a $6,000 credit card to your application even if you
didn’t ask for it! This adds unnecessary credit limits
that will affect your future borrowing capacity.
This shows how crucial it is to know how to properly structure your loan application and
not just your loan.
For example, if you have a credit card and you owe money that you can’t pay off
during the application process, it may be a good idea to do a ‘balance transfer’ so you
can transfer the amount owing to the bank you’re applying to for the loan. You will save
more money on fees when you bundle your existing credit card with your mortgage.
Some lenders will also assess your loan application more favourably if you switch over
your credit card balance.
Got a question?
Click here to send an enquiry!
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
6
2
Realistically Assess Your
Borrowing Power And
Serviceability
Property investors often think that their
rental income increases their borrowing
power dramatically.
In short “yes it does”, but often by not as
much as they think.
Not all your rental
income can be used
for serviceability!
DID YOU KNOW
Most banks will only factor in 80% or less of your rental income
when assessing your loan application?
This means that if you’re earning rent of $400 per week, your lender only sees $320 or less
per week on your application. Even if YOUR OWN figures show that rent should cover
interest and you were counting on your rental income to get your loan application over
the line, sorry to say, but you might be disappointed to find out how much the bank will
actually use!
This isn’t all bad news as it means that even in a worst case scenario you would still be
able to maintain the mortgage repayments. The upside is that in a rate rise you will have
peace of mind knowing that you have a buffer so you won’t fall behind on payments.
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
7
A REAL MORTGAGE CORP CLIENT STORY
How understanding how lenders factor in rental income
helped a client secure a great investment opportunity and
structure his borrowing more effectively
We recently had a new client approach us who is highly-educated, has
a high-ranking position in a publicly listed company and who owns a $1
million home.
He seemed to know a lot about property investment and knew what he
wanted. He came to us after he wasn’t able to find a bank who could
lend him the amount he needed to purchase a house with fantastic
development potential.
He was tired of his previous broker who only knew how to find the lowest
interest rate without understanding his investment plans.
Long story short, neither the client and nor his previous broker understood
that lenders were only using 80% of his rental income when working out
his borrowing capacity. His loan structure was also not set up correctly
to be tax effective and to provide adequate loan flexibility.
Now that he understood this, he realised he needed other ways to boost
his borrowing capacity. It turned out that he was planning to use cash and
savings as a deposit and was only proposing to borrow 80% against the
investment (to avoid paying Lenders’ Mortgage Insurance). However,
as he only had a small mortgage remaining on his own home, STRAIGHT
AWAY Neil saw an opportunity to assist this client get 100% borrowing on
the proposed investment (still without needing to pay Lenders’ Mortgage
Insurance) and to get a more effective loan structure.
Neil also suggested the client speak to his accountant to possibly get
more out of his loan from a tax perspective as well.
Result: We increased the client’s borrowing capacity dramatically and
he was able to secure a great investment and his loans is now structured
more tax effectively
This leads us to the next strategy related to negative gearing.
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
8
3
The Lesser-Known Benefit
Of Negative Gearing
The most recent Australian Taxation Office (ATO) figures show that property investors in
Australia claim $11 billion in negative gearing deductions per year.
The number one reason negative gearing gets talked about is because of tax benefits.
Another little-known benefit of negative
gearing is it can also increase borrowing
power and make loans cheaper!
Some lenders, but not all, will increase the amount you can borrow by factoring in the
tax savings you make from negative gearing.
Let’s say you earn $80,000 a year and make a rental property loss of $10,000, because
your interest and expenses exceed your rental return. This means you have an additional
$3,250 of tax benefits per year which you can either use to service your mortgage
repayments or pay off your OWN mortgage faster.
Negative gearing has helped some of our
clients achieve $20,000
extra borrowings
to $100,000 in
We are not solicitors or registered tax
agents and we cannot give you tax
advice, but as mortgage brokers we know
that some lenders use negative gearing to
assist client get access to more funds when
purchasing or refinancing investments.
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
9
A REAL MORTGAGE CORP CLIENT STORY
How a client used negative gearing to increase his borrowing
capacity by $100,000
We had a client who was looking to purchase multiple investments. He
had been to a couple of lenders but couldn’t get the amount he wanted
for his loan.
He came to our loan strategy session where we sat down with him and
found out that his borrowings were over 90% of the value of the proposed
properties and the maximum loan he was offered by one lender was
around $850,000. He had plenty of equity in his owner-occupied and
other investment properties and he had loans with multiple banks.
We recommended that he restructure his investment lending and
consolidate his loans. We also helped set up his new loan structure and
found a new lender who agreed to lend him nearly $950,000 - that’s an
extra $100,000 for investment lending!
The reason we were able to achieve this result is because his other lenders
didn’t take negative gearing into account when assessing his maximum
loan amount.
It’s also important to understand that borrowing money from multiple
lenders will in most cases reduce your borrowing amount with a new
lender because they will add a repayment buffer to your current loans
with other lenders.
We don’t recommend our clients buy properties for negative gearing’s
sake - negative gearing is often just a small benefit of owning and
investment property.
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
10
Don’t just borrow more – borrow
cost effectively
Some banks also take into account negative gearing when it comes to determining
your loan to value ratio (LVR) – this could mean you can potentially save thousands by:
ÂÂ Avoiding lenders mortgage insurance (LMI); and/or
ÂÂ Being able to achieve a better interest rate on your loan.
It is therefore essential to know what each lender’s policies are, so that your negative
gearing is factored in a way which achieves the outcome you want.
Got a question?
Click here to send an enquiry!
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
11
Increase Your House
Value The Smart Way
4
Bank Valuation vs. Real Estate Appraisal
Have you ever been in a situation where the real estate agent is quoting $600,000 but
the bank is somehow coming up with a lower valuation of $550,000?
It can be frustrating when a lower bank valuation means the difference
between getting your loan approved and rejected.
As the bank valuation is one of the main things a lender uses to work out how much to
lend to you, it’s important to understand what they look for (and that if they sold your
house next Monday, how much could they get!!!)
What does a valuer look for?
A bank valuation is carried out by a licensed valuer – rather than a real estate agent.
The valuer looks at factors such as:
ÂÂ comparable sales in the area within the last 90 days
ÂÂ the number and types of rooms
ÂÂ fixtures, fittings and any improvements
ÂÂ the standard of presentation such as flooring, tiling, painting and
landscaping
ÂÂ location and environmental factors such as whether the house is on a main
road, zoning and vehicle access
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
12
Should you clean up your house to impress the valuer?
When we tell a client a valuer will be visiting their home to get a valuation, their first
reaction is often “well, I better get the house cleaned up!” We say “don’t bother –
you’ve got better things to do!”
The valuer doesn’t care if your house is clean, whether you’ve got dishes in the sink
or clothes on the floor – they’re only interested in your fixtures, fittings, tiles, painting,
backyard, roofs, walls, fences and all the things that make your house saleable if
you were to vacate the property and put the house on the market that day. Unless
you have some unfinished painting or holes in the wall for the new TV, we wouldn’t
suggest you do too much at all.
How to increase your property value?
You can increase your home’s bank valuation through the following ways:
ÂÂ for those on a small budget - try a cosmetic renovation as this doesn’t
cost you as much but can increase your house’s value. This can include
repainting, flooring/recarpeting, landscaping, installing better lighting and
tiling. Even adding or upgrading appliances like stoves, range hoods and
dishwashers can do the trick.
ÂÂ for those on a bigger budget - for longer term returns try redoing the kitchen
and bathroom or adding an extension such as an extra room or an extra
bathroom. These will usually have a better return on investment with new
equity.
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
13
5
Say Goodbye To
Advertised Interest Rates
Banks might advertise one interest rate on their website but a good mortgage broker
is often able to get you a more suitable rate or reduced fees simply by the way they
structure your loan application.
For example, in 2015, banks started to set higher interest rates for investment home
loans compared to owner-occupied home loans in response to changes by Australian
Prudential Regulation Authority (APRA).
But experienced brokers have been able to achieve owner-occupied interest rates for
property investors. This is not available through all lenders and industry knowledge is
crucial.
That being said, we often warn investors not to simply chase the lowest interest rate
because it can often end up costing them more.
Take the case of a fixed interest rate or introductory rate that might look lower at first but
if you suddenly need to sell within the fixed term, or the introductory rate expires, you’ll
either be back where you started or up for early repayment penalties that outweigh any
interest you save. It pays to consider other conditions of your loan before diving into a
loan with the lowest advertised rate.
One Bonus Tip!
If you have a salary sacrifice arrangement with your employer – for example, a car
loan or a novated car lease – WATCH OUT – this can actually hinder your borrowing
power.
This is because a lender assesses your borrowing power based on your normal gross
income and tax instalments. Saving tax and cash through salary sacrificing DOES
NOT help you borrow more money.
Your Next Step to getting the right loan and
loan structure for long term investment success
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
14
REQUEST FREE LOAN STRATEGY SESSION
with senior mortgage strategist Neil Carstairs
There’s no doubt that analysing the many factors that go into an investment
loan can be confusing and time consuming. At Mortgage Corp, we take
the time to understand your goals and unique situation and then come up
with a mortgage strategy on structuring your loans for long-term investment
success.
Unlike many mortgage brokers that may be able to help you with general
loans but simply don’t have the skills, experience or resources to genuinely
help property investors maximise long-term return, Mortgage Corp take a
strategic approach to help our clients maximise their overall investment
result.
Mortgage Corp receives consistent 5 star customer reviews,
read the reviews here and find out why.
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REQUEST FREE LOAN
STRATEGY SESSION
Mortgage Corp
|
www.mortgagecorp.com.au
|
Phone 1300 138 943
15