LENDING LOWDOWN | The importance of reviewing your lending at tax time

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By Phil Ringuet

banking royal commission

The end of the financial year is a great time for reflection and future planning which will generally relate to business strategy, tax planning and personal wealth creation. An integral part of this process should always be to review your current lending facilities. If you haven’t done this before, you may be missing out as there have been so many changes in the lending environment over the past 12 months.

Some key points you may wish to consider include;

  • Is my loan fit for purpose?
  • Are my rates and fees associated with my loan still competitive?
  • Are there better products and services in the market which would suit me?
  • What is the structure of my loan and could my security position or covenants be improved?
  • Does my current bank understand me, my business and do they have the appetite to support my future plans?
  • Do I need to consider borrowing for any purpose in the next 12 months?
  • Is my loan up for expiry, renewal or changing terms that I need to prepare for?

So what has changed and what could it mean for me?

  • Rates are at all time lows and are likely to get lower.  If your rate is not in the 3’s for home lending and low 4’s for commercial property you are paying above market. Here are 3 examples of offers for finance we made this week:

Home Loan rate 3.44% Variable
Commercial rate 3.84% Fixed
Equipment Finance Rate 3.75% (Motor Vehicle)

  • Credit conditions have eased, appetite is shifting and banks have been told to lend. They are desperate to return to strong credit growth and are looking for ways to approve strong applicants.
  • APRA have removed previous restrictions on investor credit increasing availability. Post Royal commission patience is required in the application process though as it simply takes more time.
  • APRA’s recently announced a review of loan assessment interest rate buffers (from a minimum of 7% to 2.5% above the loan interest rate) which has the potential to increase borrowing capacity and stimulate an improvement in the second half of 2019.
  • Post-election experts suggest Brisbane should immediately stabilise and return to moderate growth. Sydney and Melbourne’s path to the bottom of the cycle should accelerate and stabilise in the second half of 2019.
  • Your financial position is improving and your capacity to borrow.  Think reduced tax thresholds, glimmers of the property market stabilising and improving. Along with the latest rate cuts your mortgage repayments may reduce. See below as an example;
RateMonthly repaymentsAnnual repaymentsTotal repayments
4.30%$2,178$26,138$653,450
4.05%$2,122$25,468$636,722
Difference $56$669$16,728

Here are some examples of the recent Lending Solutions provided throughout the debt review process;*Based on a $400,000 mortgage with 25 years left

Scenario 1 – Combating flat or negative rental income 

If you have an investment property and can’t increase your rental return why not save costs. Here’s how we just assisted a client to improve their rental performance;

  • Property Value $675,000
  • Current Rent 575 per week which hadn’t moved in 2 years.
  • Loan Amount $540,000 – repayment $2,103 per month
  • Current rate with a major bank 4.59% Interest only

Outcome 

  • By refinancing our client to another bank we reduced their rate to 3.69% Investment Interest only – in turn repayments dropped to $1,691 per month
  • While it’s not a rental increase, it is a weekly cost saving of $103 per week.

Scenario 2 – The Commercial property investor 

  • Our client’s had acquired a commercial investment property which had a 5 year interest only initial term followed by 10-year principal and interest term.
  • After rolling the interest-only term over twice, the bank decided not to renew the term and principal and interest repayments were to commence.
  • Whilst affording them a 15-year loan term to make principal reductions this increased their repayments from $4,989 per month to $9,748 per month overnight and was not in line with their investment strategy.

Outcome 

  • After meeting with our client and discussing their options, it was determined that the principal repayments required under the Principal and Interest (P&I) facility would in fact be best utilised within the business to improve cash flow.
  • A refinance was completed utilising a non-major bank placing them on a 5-year interest only term followed by 20-year P&I at 3.92%. The client’s monthly repayments dropped to $4,083 per month representing savings of $906 per month.

At Vincents – Lending Solutions We are proud to support the Vincents community by providing expert lending solutions that are tailored to your needs. We assist you by;

  1. Reviewing your current lending arrangements whether it be for Home, Investment, Commercial, Business or Asset Finance.
  2. Providing considered and clear recommendations on how to improve your structure, pricing (rates and fees), security and related covenants
  3. Provide direct access to over 70 lenders for every type of lending enquiry
  4. Managing and arranging all new finance applications
  5. Working with you to improve your existing banking relationships
  6. Assisting in the refinance process if required
  7. Providing ongoing relationship management services to support your current and future lending requirements.

Got a Question?

If you would like to discuss your current lending arrangements and how one of our Lending Solutions may assist you, please contact Phil Ringuet our Lending Solutions Director for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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