It appears to me later on, that most investors have not been paying much attention to latest changes in mortgage world. Specially if an investor seeking to purchase a property by using last dollar in their account, at this current environment it is a great risk.
Valuation plays a major in a mortgage deal. It can be a real deal breaker in some instances. I find many clients not very keen to think about the valuation outcome can be very important. I have seen some people have to go through lots of hurdles to reimburse their deposit due to lower valuation and they do not have additional funds to complete the transaction.
Furthermore, with the proposed interest only cap suggested by APRA (The Australian Prudential Regulation Authority), interest only lending had massive changes over last few months. Many major banks have increased their interest only rates and reduce loan to value ratios from 90% to 80%. To be conservative, investors must consider paying both principle and interest on their investment properties not only just interest portion of the loan. Recently some major banks have reduced interest only period maximum for 5y from 15y.
As a Mortgage Broker in Melbourne, I do receive 3-5 new enquires weekly basis seeking a lower interest rate for investment properties. Majority of those prospects are on interest only term and they are about to pay both principle and interest. When I further vet their current financial situation to find out that why they do not want to pay both Principle and interest, simple answer I get is, that they are unable to make any contributions from their wages. This is daunting, they have taken a mortgage with out working out future potential rates rises and with out any risk analysing.
Urgent maintenance is an unavoidable aspect of being a landlord, so having a cash buffer set aside will help you deal with any unexpected problems.
When renting out an investment property, having access to extra cash is vital for two reasons:
- to cover the costs of maintaining the property, giving it the best chance of remaining tenanted; and
- to cover the cost of the mortgage should you lose your employment or rental income
A buffer ensures that you are not stretched to your financial limits, but rather comfortable while on your investment journey.
Ideally, your buffer would sit in an offset account against your mortgage, so that you have immediate access to the money while at the same time reducing the principal, and therefore the total interest payable on, your loan.
Before calculating a buffer, I ensure my clients have a budget and savings plan in place that identifies their accurate living expenses and ability to save. I would personally recommend a buffer of three to six months worth of loan repayments and living expenses. I know some clients thinks it’s over thinking, but as a responsible Home loan broker Melbourne, I want my clients to be succeed, not go on a financial hardship ever.
It’s imperative to have a strategy in place to pay back this debt as soon as possible. At Mel Finance services, we are experts in matching property investors with the right loans to match their changing needs. This is the reason that Mel Finance is not your average mortgage broker.