You heard me say it before - property investment is a game of finance with some houses thrown in the middle.
But the rules of the game are changing in front of our eyes, so today I’d like to explain what’s going on with lending, so you have a better chance of the banks saying “yes” to you and lending you more money.
Today’s guest is leading finance specialist Adam Bradley and I ask him a number of the common finance questions we’re asked when clients come to see us at Metropole, but I’m also going to ask Adam some of the questions you probably wouldn’t even think of asking but are important to know the answers to in today’s financial climate, so that at the end of today so you’ll have a better understanding of how to approach the game of property finance.
Your property finance questions answered
Everyone has a borrowing capacity – the maximum they can borrow and everyone seems to want to have a little bit more borrowing capacity so I'm looking forward to this chat with Adam Bradley, finance specialist and director of Emerge Finance in Brisbane.
The world of finance keeps changing and I know it's a full-time job to keep up with all these changes.
That's why at Metropole we always refer our clients to a finance strategist rather than suggesting they try and navigate the maze themselves or go directly to a bank.
Consider some common questions we've heard clients asking to help give them a better chance of getting their loan or a bigger loan.
- It seems harder to get a loan today, are the banks really open for business?
- The banks are starting to relax some of their policies post-COVID. However, borrowing capacity has gotten tougher over the last 12-13 months with rate rises.
- Why is it taking longer to get preapprovals?
- Banks are creating one queue for preapprovals and one for people who already have contracts, and the people with contracts have priority.
- I tried those online calculators on the bank’s websites, and they suggest I can get a lot more money than when I eventually spoke to somebody at the bank what's going on?
- The calculators are more of a hook to get a client in, it doesn’t rely on the bank’s policies, and sometimes it has to do with user input. The calculators are just a guide.
- My borrowing capacity has decreased, what are some things I can do to maximize my borrowing capacity?
- Increase your income
- Increase the type of income
- Decrease expenses
- Speak with a finance strategist
- Sure, I have a couple of credit cards but I clear them every month - does my credit card limit make a difference to my serviceability?
- Regardless of what the balance is at the end of each month, the banks include the minimum repayment and count that against you.
- I'm self-employed, are the banks still happy to lend me money to buy an investment property?
- Banks are coming out with simplified self-employment verifications. However, different banks have different policies.
- I don't have a full 20% deposit, should I consider Lender’s Mortgage Insurance even though it's going to cost me?
- It’s a cost of doing business, and it depends on the opportunity cost.
- With all of the changes, should I consider locking in a fixed rate now?
- At the moment, the fixed rates are higher than the variable. It has advantages and disadvantages depending on your personal circumstances.
- My mortgage repayments have skyrocketed, what other options do I have to assist my cash flow?
- The refinancing market is at record highs at the moment
- You can extend loan terms, which drops the minimum, but costs more in the long run
- You can also roll some debt into the mortgage for a cheaper rate
- What strategies should I be implementing to pay down their debt quicker?
- Reduce your interest rate
- Increase the frequency of payments
- Make additional payments
- Use an offset account
- Check out debt-recycling strategies
- As I grow my portfolio should I have all my loans with one lender?
- If the property owner is looking to grow a portfolio, they should look at other options. It also helps to use another bank if you want to get equity from a property.
- In this changing interest rate environment, why should borrowers seek a mortgage broker’s assistance?
- A mortgage broker offers more choice and often more experience. They also do a lot of the legwork for the client.
Links and Resources
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Get a bundle of free reports and eBooks – www.PodcastBonus.com.au
Some of our favourite quotes from the show:
“Wages haven’t gone up anywhere near as much as interest rates have, so serviceability’s tightened.” –Michael Yardney
“It’s the purpose of the loan that decides whether it’s tax-deductible or not as an investor, as opposed to what you’re borrowing against.” – Michael Yardney
“Rather than waiting, your only chance at living fully is to take action. Nothing can stop you when you decide to go all in.” – Michael Yardney
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