- Hi, its Connie from Prosperity Finance.
I hope you you're well.
Sharing the best financial tips
so that you can be more successful
with achieving your financial goals.
Now recently, we had a client
come to us to ask for help.
To help them get a finance,
to buy a rental property.
Now, they have been to their own banks.
They have two properties already.
One is home, one is a rental.
And they went back to their same bank
and asked for pre-approval.
And unfortunately, the approval amounts
it's much less than what they expected.
And it's not enough to buy anything reasonable.
So they come to us.
Now what we noticed that,
the clients has good equity in the property,
especially in the home.
But their bank, who hosts the equity,
can't give them enough lending.
Whereas other banks,
they have a different lending rule
with the same income.
They can lend much more, like 500K more.
So that'll be more than enough.
Right?
However, they need 20% deposit
client doesn't have a 20% deposit in cash.
However, they do have equity with this bank.
So we need to make sure
the equity kind of shift to the other bank
who can lend them more.
That way, they can be success.
Now, when they have two properties
or more with the same bank,
We have to firstly,
refinancing one of the properties which has equity
Refinance to the bank, who can lend them more.
But that means it would take longer,
to get a pre-approval for the rental property.
You need to complete the refinance
and then get another pre-approval.
So it's a two application instead of one.
Now you may be wondering why
we can't ask the new bank to provide approval,
for the new rental plus the refinancing amount.
Now you can't really do that,
when you have multiple properties
with the same bank
and you're trying to do a partial discharge.
Now, when you do the partial discharge
I mentioned in the previous video
the bank needs to reassess your situation.
They need to know two things.
One is, what is the remaining security value?
And make sure that remaining loan balance
is within their LVR range.
Now, more importantly is
they need to test your serviceability.
They normally ask for a copy of
the pre-approval from the new bank.
And then they will consider
what is your total lending?
And then they decide,
if they can release that property.
Let's say you can be approved for a million dollar
to buy the new rental property,
subject to your refinancing 500K.
If you don't do the refinance first,
and you get a $1.5 million approval
subject to refinancing.
Then your current bank,
once they see that offer
and they see that 1.5,
they may not prove the discharge.
Because they know your total lending
it's a million dollar more
than your existing lending amounts.
Now, in that case they will decline you
or ask you to take more loan with you
because they feel it's riskier.
Right?
So
the worst scenario is you already
unconditional purchased the property,
And it's within that pre-approval range,
but your current bank won't release your property
therefore you can't meet the condition
of refinancing only 500K.
Therefore you may not be able
to purchase the new property.
So you may have to face penalty, interest, et cetera.
That could be a disaster.
So we typically need to
refinance that 500K first.
Now, as long as you don't
increase the new lending,
you more likely to be able to,
do the discharge successfully.
We obviously will do that discharge.
Partial discharge test first
and make sure they can approve the discharge.
But that just means, it's just taking longer.
Because you have to do
that refinancing application first.
So maybe a month's additional time
before you can get the pre-approval.
Now the second thing is,
if you get the pre-approval for
the new rental plus refinancing.
The entire 1.5 mil, lending
will be treated as a new money.
Now, it's a different lending rule for new money.
Versus if you settle first and your loan,
the re-financed loan has their own rates
and long-term et cetera.
They will use the actual kind of rates
and term, instead of using test rates.
So potentially you can borrow more
if you refinance first.
So that's why we recommend that
if you are thinking to borrow more
but you currently have more than one
property with the same bank
and that bank may not give you enough lending.
It's best to split them as early as you can.
And we can time it perfectly so that,
you don't need to incur a lot of costs.
For example, your loans coming off
fixed term six months,
and you're not in a hurry
to buy the new property.
So maybe we have that strategy meeting first
and understand what you need to do to get ready.
And then we can set the
settlement date to in six months time,
so that there's no break costs.
But in six months time,
you split your lending with the different banks
and get ready to do pre-approval after that.
So yeah, I just wanted to share a customer experience.
Because I don't want you to do the same thing
and experience some months longer.
It's important that you get
the current loan structure right.
If you are not sure,
it's best to get in touch with us.
And we're more than happy to do review
on your existing lending to help
you get ready for the next one.
And it's all free.
So you don't need to feel the pressure.
Right.
Thank you so much for watching.
If you find this content useful,
please feel free to share with your family
and friends so that they can
benefit from that as well.
Until next time, take care.
Bye-bye.