If you want to build a property portfolio to get you where you need to be, you need to make sure everyone you are relying on is on the same page as you.
Your accountant, legal team, buyer’s agent and, most importantly when it comes to loans, your mortgage broker.
Your average mortgage brokers out there may not be interested in your whole property journey. Often, they focus on one job only, getting a loan approved for the one property you are currently looking to purchase, and in doing so, secure their commission.
They are not thinking ahead and getting you the right loan that will allow you to purchase your next one, two or even 10 properties.
Here are a few common ways you can get screwed over by a mortgage broker who may be focusing more on their commission than your property portfolio.
Cross securitization is a common one. When you are building a portfolio, you don’t want one under-performing property to drag down the rest.
Say you have three loans for three different properties. Loan 1 is worth $100,000; Loan 2 is worth $200,000 and Loan 3 is worth $300,000. You may think they are all their own entities, but let’s just say that unbeknownst to you, your mortgage broker has cross securitized them.
That means that there is a total loan of $600,000, secured against all three properties and you can’t sell or refinance one of the properties without the other two also being considered by the lender.
This situation can present a couple of nightmare scenarios.
Say you want to sell or refinance
Imagine the property attached to Loan 1 is in a property market that has seen some growth and you decide you want to sell that property and access the capital. The bank might say ‘OK, but first we need to do a valuation on the other properties because between them they need to be able to service the remaining $500,000 of that original $600,000 loan’.
If properties 2 and 3 have gone down in value, this may mean you will have to make up the difference to the bank.
Say you’ve paid down some of the loan and you only owe $400,000 but now properties 2 and 3 are only valued at $400,000, having lost $50,000 each in value of the properties. This means your loan to value ratio would now be 100% which the bank won’t allow. The bank may require you to pay $80,000 to get your loan down to $320,000 and 80% of the value of the properties. You’ve now lost any of the gain you may have realised by selling property 1.
The same applies for refinancing. Want to access some equity or get a better interest rate on one loan? Well, this won’t be easy if the two other properties and their loans must be considered, and they are holding you back.
If they weren’t cross securitized?
If the three loans were each stand alone, you could sell the top performing property, keep the money you make and continue servicing the loans of the two underperforming properties as long as you can make the repayments.
Inexperienced or unaccredited
Another trap with mortgage brokers is that you may end up with a higher interest rate than you should be paying or with a lack of flexibility in your loan product. This could be because your mortgage broker isn’t accredited to deal with the best lenders.
It’s important to realise that not all mortgage brokers have access to all the deals that are out there. They may be unqualified or inexperienced.
You need to ask a mortgage broker how many lenders are on their books and what commissions do they get from what lenders. The broker may have access to only a handful of options for you and may be steering you towards the loans that get him or her the best commissions.
Want to cut through the confusion?
The team at Zinger Finance has the best knowledge when it comes to structuring finance for maximum flexibility and growth and can make sure you are getting access to the loans most likely to help you through your whole property journey. If you need help building a finance structure strategy, reach out to us.