Refinancing is still one of the fastest ways we have seen our customers grow wealth. Why? Because in the last 10 years and even for the last 30, the fastest way of growing capital in Australia has been to invest in property in high capital growth areas ( most areas in Australia- especially near main cities or mining towns) and then just wait until its value goes up and then refinance, take the cash out and buy more properties.
Quite a few of our professional customers have simply bought an older property without much deposit (through a guarantor loan) near the main city mostly in Sydney and Melbourne and then renovated the property and then had the properties revalued and released the guarantor thus creating equity and having a place they love the renovation on to live in (or rent out) at the same time. Once this has worked for them once, they often keep doing the same thing.
Refinancing What Are The Risks?
- The market yesterday is no guarantee that the same thing will happen with property tomorrow, so there is no guarantee that property will keep going up. Can you insure against this? Yes through a capital guarantee. Do most people do this? No. But you can do it. Also you can research the economy and decide if you think that there is significant risk that the economy could go down.
- The particular property you are looking to purchase always has a risk that the micro area its in has some problem, such as the big factory in town shuts down causing unemployment- again its also a great idea to do the micro research as well as the macro.
- There is a risk that interest rates could go up- you can possibly mitigate this by fixing your loan.
- There is a risk that the tenants do not pay rent or something goes wrong with the property. You need to research all this before you buy.
- There is a risk that you could over capitalise- ie spend too much on improvements- you need to research really well what your costs will be (and get quotes) and ask the valuer for an “as is” and “on completion” valuation- so you can know if your particular renovation add more value that they cost.
Overall there are considerable risks, but if you have a good income and can afford to wait for economic conditions to turn and some decent equity, many of the risks can be mitigated. As there is no possible other way to create wealth for most people ( unless you are great with shares) and if you are lucky enough to live in a property you have renovated- it can be in your style and make you money.( This is what we call a model mortgage)
How Much leverage Is Right For Me?
( By leverage we mean the amount of loans compared to the amount of property/assets you own)
This depends really on how you perceive the market and how you mitigate your risks, this is why its so important if possible, that you take our fact find, so we can work with you to explain what the effect of your loans are on your leverage position so you can decide what level of risk that you are comfortable with.
As far as the loans are concerned most banks on normally documented loans ( ie loans where you prove your income in a stable job via payslips or current tax returns) will let you borrow 80% of the value of a property without paying lenders mortgage insurance. Some allow up to 85% with no mortgage insurance.
How Do We Help You Refinance? ie What Parts Do We Do?
We take care of all the aspects of the loan, making that part easy for you.
After you do our fact find, which will uncover your risk appetite, we work with you to figure out for your circumstances what level of leverage you want, if we need to fix your loan, if we need an offset account, what exact structure for the loan would suit you best. We then go to our thousands of products and work out for your circumstances which is the cheapest lender able to give you the products you need. We help with paperwork etc. We also provide you a copy of all calculations and your fact find and the costs of the loan we chose together as well as the reasons we chose it.
You only need worry about which actual property to buy, the research on the micro and macro levels, what renovations you might do.
What Is Rapid Refinance?
Rapid refinance is when the new lender makes the new loan available to you quickly(usually within 48hours)before your old lender knows- and the new lender takes care of paying out the old lender afterwards. Rapid refinance is available for certain lenders and to qualify you must meet certain criteria. We automatically suggest it if you are eligible as it make the loan process much quicker, so it’s not something you ever need to worry about.