- Hey, this is Connie from Prosperity Finance.
I hope you're doing well.
Now in this video I'm going to share with you
a very common question asked by our clients.
That is, what is the downside
of having two or more properties secured with one bank?
That's a really common question we get asked all the time
because every time when we talk to clients
and we notice they have two or more property with one bank,
we always suggest them split the banks.
Well the bank won't tell you that,
because they want to have as many as security as possible,
so that they feel safe,
but from your perspective, the less, the better.
Now in this case I'm going to share a case study with you.
This is a really classic example.
It can demonstrate four area of the disadvantage
of having all your property with one bank.
So let's say this couple is Mark and Jane.
Now Mark and Jane are married couple.
They have a family home,
and they have two rental properties.
Family home is in the family trust,
and two rental properties
are owned by a looks-through company.
Now they're going back to their own bank, ANZ,
and ask for further lending
because they want to buy apartment as next rental property.
Now bear in mind, all their three properties
are secured with ANZ.
Now the outcome from ANZ is no, you can't borrow further.
Now client came to us.
Now, we do have a solution for borrowing more for them.
However, we notice that all their properties
are secured with one bank,
so before we do the new lending,
we actually reviewed the structure and suggest some split.
Let's have a look why is that.
So, as mentioned, client have a family home in the trust,
and the two rental properties in the LTC.
Now that's their loan balance as it now,
and the lender is all ANZ,
and the purpose is investment, investment, home,
and the value of each property.
Now what are the downside?
Firstly, your family home
is exposed to your rental property investment.
Now if anything wrong with loan repayment under the LTC,
your family home is exposed to the risk.
Now bank can take this property and sell it
to repay your loan in the LTC.
They can do that.
They're all cross-secure, okay,
so you don't really want bank have a cross-guarantee
between the entity and you don't want your family home
in the same bank as your rental property.
So that's number one.
It doesn't happen often, but do happen,
so if you can separate them, it's best to separate them.
Now the second issue is,
if you sell any of these property,
let's say sell this property,
now maybe because you need the money to do something, right,
say you can sell the property for 1.12 mil,
and you thought I'll just pay off 650K.
That's actually not the case.
The bank will tell you how much you're going to repay,
because we call it partial discharge.
Partial discharge means you also have other security
after discharge this property,
so they're going to reassess your situation.
They will look at if other two properties
has sufficient value to cover that 910,000.
They also need to say
if your income is sufficient to cover 910,000.
If not, then they will ask you
to repay more than this number.
Now the worst scenario is after paying
your real estate agent commission,
they will take over all the net sale proceeds,
so you won't have anything left
to do any other things, okay.
This is a really common, partial discharge.
That create a lot of issue,
and normally you don't find out
until a settlement for the sale,
and it's too late for change your mind.
Now the next thing is, as mentioned earlier,
ANZ said you can't borrow further.
Well yes you can, it's just not from ANZ.
You can borrow 70% from another lender
who can lend you that 500K,
but they won't lend you 100%,
because as the investment, you can only borrow 70%,
so where are the other 30% come from?
If you don't have the cash,
then you need to utilize equity in the property.
You can see client has a good equity in the three property,
but you can't utilize
because ANZ said you can't borrow more.
They can't give you the top up.
Is then if you have say, you know,
this property in the separate bank, say Westpac,
then you can use that equity
and you can borrow 100% without any cash down.
Okay, so that's about further borrowing limitation.
Now the last thing is,
when you have everything with one bank,
when it come to renew,
like the loan fixed term is coming off is coming off
and you want to refix for another term,
now, you probably potentially face two risks.
One is higher interest than any other bank.
What if ANZ charge you 0.2% higher than other bank?
It does happen, you know.
Probably at a time where you borrow the money,
that's the best offer, but could change.
So, the higher the loan amount,
the higher the interest costs,
compared to if you split your security, right.
The other thing is,
if you are interest only for your rental property,
and the interest only term is coming off,
and you need to pay principal interest,
so that creates extra cashflow stress for you,
versus if you have some of your loan with other banks,
your probably interest only term
coming off at different time,
so give you time to adjust,
so that's about interest only term termination.
Yeah, that's about it.
So cross-secure, and partial discharge,
and further borrowing limitation,
and finally is in terms of maintaining your loan,
and minimize the cashflow stress.
So I hope this video is useful for you.
If you have two or more properties with one bank,
before you borrow further,
please take time to review and see if you can split them.
Now, if you don't know what to do with your loan structure,
obviously the best way is to contact us,
and we'll do a obligation free review for you.
Alright, thank you so much for watching.
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Thank you.
I will see you next time.
Bye bye.