The other week, we came across an article which confirmed a suspicion we have had that many investors may be going through with their homes loans right now.
Written by business reporter Stephen Letts for the ABC news site, he referenced mortgage comparison website MOZO who found that ‘mortgage holders who borrowed near their limit in recent years were finding it increasingly difficult to refinance their loans and were “trapped” with their current lender’.
This is exactly what we are seeing when speaking with our Mortgage Broker Tim Russell from Multipart Finance, in particular for investors who have two or more investment properties. When APRA brought in their changes in late 2014, Tim estimated that people’s borrowing capacities dropped around 40% over night.
Where people are finding it most difficult is when their interest only loans expire and they are forced to move onto P&I repayments.
So knowing where we are right now is vitally important as well as understanding what it takes to grow your investment portfolio without being hemorrhaged from the banks. Here are three things you should consider.
Obtain loans from different lenders
Staying with the same bank will allow you to negotiate cheaper interest rates as the larger your loan the stronger your ability to negotiate. However, at the same time this will severely limit your borrowing capacity.
Take a blended approach with your repayments
It would be wise to stagger your repayments so that you have some loans with P&I repayments from day one. For your other loans that are interest only, make sure they expire at different dates so you don’t have such a sudden increase to your overall loan repayments.
Look to purchase a combination of high growth and high yield properties
Think strategically about making sure the type of investment assets you purchase match your family’s cashflow requirements. There is no doubt we are looking at a market that is going to be very different to what we have seen over the past few years. But like all things in life, change is inevitable and those that adapt and accept the new conditions will prosper.