Real Estate: Adding Value and Subtracting Value
Taken from the Australian Property Investor Magazine January 2007 edition ‘From Little Things Big Things Grow’ article.
Securing a lower rate can be as simple as asking if you’re getting the best deal, says mortgage broker Glen Spratt. If your total borrowings are greater than $250,000, there’s a good chance you can get a discount off the standard variable rate.
“The discounts are generally tiered,” says Spratt, director of Mortgageport. “The bigger the loan, the larger the discount. Generally speaking on any loan these days over $250,000 you can negotiate a discount of anywhere from 0.5 per cent off the bank’s standard interest variable rate. I’ve seen discounts as high as 1.2 per cent.”
The real estate loans attracting discounts at the upper end of that range would total well over $1 million, he adds. Usually these discounts come under the guise of a professional package, which will roll in other services, such as free transaction banking accounts, gold credit cards and real estate mortgage facilities such as offset accounts. For the home borrowing package, borrowers pay an annual fee in the order of $300 to $400. Despite this approach of giving with one hand and taking with the other, Spratt says real estate borrowers can save thousands of dollars a year.
“If you’ve got a $500,000 loan and you’re getting a 0.7 per cent discount that’s $3500 a year. If they’re charging you $300 in fees, you’re still $3200 a year better off.”
David Johnston of Real Estate Property Planning Australia says a few lenders will even negotiate on the package’s annual fee as well as the interest rate.
If you don’t like the look of the professional packages, don’t despair.
CANNEX mortgage expert Harry Senlitonga says that’s not the end of the negotiation. “With the lender’s discretion, they may offer you a special deal, especially if you borrow above $500,000,” he advises.
If your bank lender doesn’t appear too keen to negotiate, look elsewhere. Competitors may be more willing to win your business. Watch out for the extra costs associated with refinancing, though there are ways to beat those as well. For instance, some real estate mortgage brokers will pay the costs associated with switching loans in certain circumstances. Or just use the better offer as a negotiating tool, suggests Johnston.
“If you prefer to stay with your existing bank real estate lender, but just want to try to get a sharper interest rate, you can just talk to your existing lender and say, ‘here’s this offer over here and you’re only giving me this – can you match that?”
Since interest rate discounts are largely determined by your total borrowings, shifting all your loans to one bank lender could help. “The more facilities or more borrowings you have with them, the more negotiating power you have,” says Johnston.
“If it’s someone who might have loans spread across two or three different bank lenders, by bringing all those loans together with one lender, it’ll certainly allow them to negotiate more fiercely with the bank mortgage lender to get the best interest rate for themselves.”
Borrowers who are comfortable with doing so can essentially beat the banks at their own game by setting up a line of credit.
A line of credit is a type of personal overdraft, explains Johnston. In the bank lender’s eyes, even if you don’t use the money, your total borrowing facilities are at a higher level. “Even if you don’t plan to use it in the future, you can set it up (and it) can help you to get onto a better professional package and negotiate better real estate mortgage interest rates,” Johnston reveals.
He says a line of credit, or LOC as it’s commonly known, doesn’t necessarily involve higher fees either, since many professional packages allow for a number of different borrowing facilities.
A lot of borrowers have switched their bank mortgage loans to fixed-rate products in recent months, Spratt says. “There are mortgage real estate products available today where the fixed rates have a lot of flexibility, such as having an offset account attached to a fixed rate loan,” he says. “Three-year fixed rates now are lower than even the discounted variable rates and when you can have something like a 100 per cent offset account attached to it, it still gives a client the flexibility of making additional payments to the bank loan.”
However, Senlitonga notes there’s no guarantee you’ll save money on a fixed rate since you’ll be tied to it even if the variabl rates come down. Johnston adds that bank mortgage lenders aren’t as negotiable on their advertised fixed mortgage rates as they are on their variable mortgage rates. “most lenders with fixed rates, you can negotiate a discount but it’s more around 0.15 per cent or 0.25 per cent at the higher end,” he says.
Johnston says real estate borrowers who don’t qualify for a professional package could opt for a discounted variable mortgage rate. “The discounted variable loans are the ones that don’t have quite as many bells and whistles, so they don’t have the 100 per cent offset account but they give you a lower interest rate,“ he explains.
The difference between standard variable and discounted variable rates is often around the 0.7 per cent mark. Senlitonga says a recent CANNEX study found more than 60 per cent of offset accounts had a balance of less than $5000, meaning real estate borrowers were paying to have access to a feature they weren’t really using.
However, Spratt, warns real estate mortgage borrowers to think twice before giving up certain extras, such as redraw facilities. “(It) can have consequences that might not be apparent now but may come to a head down the track,” he says.
Non bank real estate lenders can often help borrowers save, Spratt says. “My experience is you can get the same sort of discounts you’d get from the real estate mortgage banks but you don’t generally have to pay the ongoing fee that y ou’d pay with the bank,” he explains.
“You might get the equivalent of a 0.5 to 0.7 per cent discount off the standard variable mortgage rate but you the ndon’t have to pay the $300 a year fee.” Senlitonga warns, however, that simply switching to a certain type of bank lender won’t guarantee you get the best loan. He says it’s important to match the right product ot an individual borrower’s needs.
Bank lenders with online only products often offer good interest rates, though borrowers will sacrifice any loan extras and access to in-branch real estate services, Johnston says. He says online bank loans for real estate investments are probably the best suited to borrowers who have a good understanding of the mortgage real estate industry and who only need straightforward loans.
“They’re probably not set up for more complex loan structures for people with a number of investment real estate properties etc.,” he says.
If you don’t feel comfortable negotiating with various real estate lenders, a mortgage broker can do this for you – usually at no cost to you. In addition, mortgage broker’s inside knowledge and access to 30-plus lenders can help secure a discount for your real estate investment.
“Mortgage real estate brokers are often able to fins epical deals or special offers that aren’t generally published to the real estate market,” Spratt says.
Johnston adds, “A good broker can shop around on your behalf and can know which lenders are offering the best pricing at a particular time. That’s something that is constantly evolving and moving and changing.
Intense competition between bank lenders means you don’t have to feel the full pinch of recent interest rate rises. There are at least nine techniques you can use to secure a lower rate on real estate investment interest rates. By Matthew Liddy for the API Magazine January 2007 edition.
1. Just Ask
Securing a lower rate can be as simple as asking if you’re getting the best deal, says mortgage broker Glen Spratt. If your total borrowings are greater than $250,000, there’s a good chance you can get a discount off the standard variable rate.
“The discounts are generally tiered,” says Spratt, director of Mortgageport. “The bigger the loan, the larger the discount. Generally speaking on any loan these days over $250,000 you can negotiate a discount of anywhere from 0.5 per cent off the bank’s standard interest variable rate. I’ve seen discounts as high as 1.2 per cent.”
The real estate loans attracting discounts at the upper end of that range would total well over $1 million, he adds. Usually these discounts come under the guise of a professional package, which will roll in other services, such as free transaction banking accounts, gold credit cards and real estate mortgage facilities such as offset accounts. For the home borrowing package, borrowers pay an annual fee in the order of $300 to $400. Despite this approach of giving with one hand and taking with the other, Spratt says real estate borrowers can save thousands of dollars a year.
“If you’ve got a $500,000 loan and you’re getting a 0.7 per cent discount that’s $3500 a year. If they’re charging you $300 in fees, you’re still $3200 a year better off.”
David Johnston of Real Estate Property Planning Australia says a few lenders will even negotiate on the package’s annual fee as well as the interest rate.
If you don’t like the look of the professional packages, don’t despair.
CANNEX mortgage expert Harry Senlitonga says that’s not the end of the negotiation. “With the lender’s discretion, they may offer you a special deal, especially if you borrow above $500,000,” he advises.
2. Shop Around
If your bank lender doesn’t appear too keen to negotiate, look elsewhere. Competitors may be more willing to win your business. Watch out for the extra costs associated with refinancing, though there are ways to beat those as well. For instance, some real estate mortgage brokers will pay the costs associated with switching loans in certain circumstances. Or just use the better offer as a negotiating tool, suggests Johnston.
“If you prefer to stay with your existing bank real estate lender, but just want to try to get a sharper interest rate, you can just talk to your existing lender and say, ‘here’s this offer over here and you’re only giving me this – can you match that?”
3. Consolidate Your Loans
Since interest rate discounts are largely determined by your total borrowings, shifting all your loans to one bank lender could help. “The more facilities or more borrowings you have with them, the more negotiating power you have,” says Johnston.
“If it’s someone who might have loans spread across two or three different bank lenders, by bringing all those loans together with one lender, it’ll certainly allow them to negotiate more fiercely with the bank mortgage lender to get the best interest rate for themselves.”
4. Establish a Line of Credit
Borrowers who are comfortable with doing so can essentially beat the banks at their own game by setting up a line of credit.
A line of credit is a type of personal overdraft, explains Johnston. In the bank lender’s eyes, even if you don’t use the money, your total borrowing facilities are at a higher level. “Even if you don’t plan to use it in the future, you can set it up (and it) can help you to get onto a better professional package and negotiate better real estate mortgage interest rates,” Johnston reveals.
He says a line of credit, or LOC as it’s commonly known, doesn’t necessarily involve higher fees either, since many professional packages allow for a number of different borrowing facilities.
5. Fix your Rates
A lot of borrowers have switched their bank mortgage loans to fixed-rate products in recent months, Spratt says. “There are mortgage real estate products available today where the fixed rates have a lot of flexibility, such as having an offset account attached to a fixed rate loan,” he says. “Three-year fixed rates now are lower than even the discounted variable rates and when you can have something like a 100 per cent offset account attached to it, it still gives a client the flexibility of making additional payments to the bank loan.”
However, Senlitonga notes there’s no guarantee you’ll save money on a fixed rate since you’ll be tied to it even if the variabl rates come down. Johnston adds that bank mortgage lenders aren’t as negotiable on their advertised fixed mortgage rates as they are on their variable mortgage rates. “most lenders with fixed rates, you can negotiate a discount but it’s more around 0.15 per cent or 0.25 per cent at the higher end,” he says.
6. Accept Fewer Features
Johnston says real estate borrowers who don’t qualify for a professional package could opt for a discounted variable mortgage rate. “The discounted variable loans are the ones that don’t have quite as many bells and whistles, so they don’t have the 100 per cent offset account but they give you a lower interest rate,“ he explains.
The difference between standard variable and discounted variable rates is often around the 0.7 per cent mark. Senlitonga says a recent CANNEX study found more than 60 per cent of offset accounts had a balance of less than $5000, meaning real estate borrowers were paying to have access to a feature they weren’t really using.
However, Spratt, warns real estate mortgage borrowers to think twice before giving up certain extras, such as redraw facilities. “(It) can have consequences that might not be apparent now but may come to a head down the track,” he says.
7. Try a Non-Bank Lender
Non bank real estate lenders can often help borrowers save, Spratt says. “My experience is you can get the same sort of discounts you’d get from the real estate mortgage banks but you don’t generally have to pay the ongoing fee that y ou’d pay with the bank,” he explains.
“You might get the equivalent of a 0.5 to 0.7 per cent discount off the standard variable mortgage rate but you the ndon’t have to pay the $300 a year fee.” Senlitonga warns, however, that simply switching to a certain type of bank lender won’t guarantee you get the best loan. He says it’s important to match the right product ot an individual borrower’s needs.
8. Go Online
Bank lenders with online only products often offer good interest rates, though borrowers will sacrifice any loan extras and access to in-branch real estate services, Johnston says. He says online bank loans for real estate investments are probably the best suited to borrowers who have a good understanding of the mortgage real estate industry and who only need straightforward loans.
“They’re probably not set up for more complex loan structures for people with a number of investment real estate properties etc.,” he says.
9. Use a Broker
If you don’t feel comfortable negotiating with various real estate lenders, a mortgage broker can do this for you – usually at no cost to you. In addition, mortgage broker’s inside knowledge and access to 30-plus lenders can help secure a discount for your real estate investment.
“Mortgage real estate brokers are often able to fins epical deals or special offers that aren’t generally published to the real estate market,” Spratt says.
Johnston adds, “A good broker can shop around on your behalf and can know which lenders are offering the best pricing at a particular time. That’s something that is constantly evolving and moving and changing.
Labels: Adding Value, Checklist, Real Estate, Subtracting Value, tips for selling
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