how-brokers-can-screw-you-over

How Mortgage Brokers Can Screw You Over

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

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.

 

 

Property Interest Rates On The Rise?

There are a lot of changes taking place in order to help banks make more money (not that they need to). And even though the RBA isn’t moving their interest rates, property interest rates are on the rise after the banks decided they’ll do so independently.

The first change to take place was announced last week by Westpac, and discussed by Nathan in his recent Facebook Live seen above. Westpac have stated that, as of the 19th of September 2018, their home loan interest rates will increase by 0.14% independently of the RBA.

 

What sort of changes do we expect to see in the future?

In short, we are expecting other banks to follow suit.

The APRA restrictions have caused all banks to bleed. To compensate for that loss, banks now must raise their rates to get back some of that money.

Depending on what their needs are, they will play around with their interest rates accordingly.

 

So what does this mean for Australians?

The cost of money is going up all around the world. However, in Australia it hasn’t. This will cause 2 things:

  • The Australian dollar will suffer because of it, as all other countries around the world are rising their rates.
  • We are also going to be facing some rate rises independently of the RBA.

What is the good news?

As much as this may seem to be a restrictive situation, many opportunities arise due to it.

Since the interest rates have changed, so will the policies and criteria for lending.

Not many people will be buying or investing in properties. This opens a lot of doors and opportunities for bargains to those who are looking to invest and start building a property portfolio.

Rent prices are very likely to increase, and if you already have a property investment portfolio, you will potentially earn more rental return.

 

Why shouldn’t we panic?

This is just a natural part of the cycle and it’s happening all around the world.

Here at Zinger Finance, we don’t focus on interest rates and, even though property interest rates are on the rise, we’re not concerned about them. We don’t even believe that they will increase dramatically anyway.

In our experience, we’ve found that banks will offer cheap rates just to get you in the door. But, we guarantee you, that these cheap rates come with a lot more terms and conditions that don’t necessarily complement your long-term goals.

Therefore, don’t settle for cheap loans, as quite often they won’t get you very far.

 

What to do next?

Senior Zinger Finance strategist, Graham Turnbull explains that there are solutions, regardless of your current position.

“If you are a experienced investor, focus on building your investment portfolio and make sure to stay away from the bank’s cheap marketing strategies.

If you’re not already an investor, there are heaps of varying interest rates floating out there that you may be able to strike a good deal out of.”

 

As we have said before, we don’t just focus on interest rates. There are many things to consider when choosing the right home loan for you and your situation.

If you are buying your own home, you would potentially look at a different loan structure to what you would look at if you were building an investment property portfolio.

Zinger Finance structures mortgages in a way that minimizes the impact of changes such as the increase of interest rates.

If you have any questions, our experienced team at Zinger Finance are more than happy to help.


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