Proven Solutions to Overcome Finance Approval Hurdles | Financial Freedom Podcast Ep 5 - Debt to Financial Freedom

Episode Transcript
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Andrew Bean (00:01):
All right, we are back with the financial freedom
series. My name is Andrew Beanand I'm here with top mortgage
broker and financial expertVictor Lagos. From Lagos
Financial. How are you mate?

Victor Lagos (00:13):
I'm good, Andrew, how are you, mate?

I'm fantastic, buddy, how's everything going in
the world of finance?

I must say, it's definitely been much better.
Since we haven't had rate risethe last few months. Man, it was
it was tough trying to keep ontop of all those change of rates
and policies and lenders. Butnow people I mean, it's also
spring. So people are out therebuying property. People want to
get property, and it's just amatter of, you know, can I

(00:41):
borrow the money? So at themoment that cancer?

Yeah, that's it. I don't think we're, you know, out
of the woods yet with interestrate rises, or, you know, even
interest rate drops. But, yeah,definitely more listings. Now.
It's spring. So it's really goodto see.

Definitely, and I'm just even for commercial
property, I'm finding peoplethat I was talking to months
ago, are actually finding theproperties, the right prices, so
gotta love them to guard them.
It's good.

Yeah, well, that's right. I mean, like the interest
rates, where they are now like asix, six and a half, even like a
7% interest rate on a commercialproperty is actually on average,
like where interest rates wouldbe over like the, you know, a
really long period of time.
That's the like, average aroundwhere it should be. And it's a
good place for commercialproperty B, because you get

(01:29):
good, like, really goodnegotiation tactics with the the
agent. And you can also work ataround like five different
interest rates later down theline, like just because you have
a high interest rate right now.
Doesn't mean that's the interestrate you have to have for the
whole life of that property. Youknow, you can refinance, you can

(01:52):
do lots of things.

Yeah, yeah, definitely. And you're looking
at cash flow from today. Butyeah, like you said, it's not
going to be that forever. Sowhen rates drop, cash flow will
improve, when rents go up, cashflow improved. So the numbers
work today, then, hopefully,they'll actually get stronger
over time.

Yeah, that's right.
And I think people arebaselining, like interest rates
today on where they went. Solike, how low they went, is that
was like a record low. That wasvery unusual. It, you know, we
may never get back there, youknow, in our careers. So like,
that was actually the unusualpart, how low interest rates
when, and this is actually moreof a normal market, where you
know, you can get good deals,you can, you know, a 6% return,

(02:35):
or interest on property isactually like, not bad. Like,
it's you shouldn't be afraid ofit right now. Yep.

Now, great movie get used to it, you know, people
will adapt to this time. Yeah.

Alright, man. So today, I wanted to have a chat
about getting finance approved,and where it could not go wrong
in the process. So in terms oflike, the most common reasons
loan applications get rejected,how and how, like applicants can
mitigate these risks of like,why applicants get rejected?

Yeah, look, it depends, I guess, on the broker
and their experience with howmany deals or how many
applications have actuallythey've worked on over their
career, and how much duediligence they put in to their
own assessments before theyapply on behalf of the customer.
So a lot of the time, if thedata is all correct, sir,

(03:39):
meaning, you know, all youraddress history is correct your
employment history, yourexpenses, you know, close to
what the banks expect them tobe, you supply all the documents
that they asked for, thenreally, it shouldn't get the
client, it's just a matter ofgoing to the right lender for
your situation. But what I'veseen probably from my own

(04:01):
experience, where things don'tgo the way I plan, it's due to
the complexity of the way theydo their tax returns. And that's
if someone's self employed,because an accountant will write
off as much as they can. Andthey will, you know, obviously
show certain amount of income.
And over the last few years,there has been, you know,

(04:22):
government subsidies and grantsand things like that to help
people. And what I've found,from my own experience, is that
some banks will deduct those oneoff income, right, and revenues
and deduct that from the netprofit. So it's not a matter of
getting the client but more justnot getting approved for the

(04:43):
amount you apply for, which isbasically like getting declined,
right. So if you're buying ifyou need 600 grand, but the bank
only approves 400 Well, what'sthe point of approving 400?
Because you needed 600 for thatparticular transaction, right?

Yeah, well, it makes sense. Yeah, it does make
sense And so like, say like,during COVID, when, you know,
businesses were getting a bit ofhelp from the government, and
they, their revenues were down,but like, and so they weren't
able to work, they weren't ableto get like the higher revenues
that they would usually get. Sothe lending is like, and then
the bank doesn't even, likecapture what they the government

(05:21):
was giving out to businessesanyway. So that, yeah, that's a
bit of a like, it's a bit of aslap in the face, really,
because like, we've all we wereoperating properly at a high
like 100% capacity, we wouldhave earned that money anyway.
And we wouldn't be even talkingright now. But because of the
situation, you know, wow. It'salmost like shading on rent.

Yeah, and that's, that's why you need to navigate
it properly, because some banksare actually understanding of
that. So they'll look at, say,the previous year and say, Okay,
well, that previous year, whenyou had no, no grants, there was
no pandemic, you earned XML, andthe hereafter, you obviously
weren't able to work, you know,you had to shut shop for a
period of time. So as long as itsort of shows that pattern of

(06:05):
recovery in the most recentfinancial year, then they'll
kind of accept it, but othersare like not blanket rule, no,
can't look at it, it was oneoff, not going to continue. And
that brings down the average. Sothat's, that's a challenge. So
obviously, somebody has tonavigate. But also just, you
know, when someone's gotmultiple entities, sometimes it
can be quite complex to trackthe money to actually, it's easy

(06:29):
to sometimes double up becausemoney gets paid from one company
to another to another trust. Andsometimes you think that, you
know, you've got just 60 grand,here's another 60 grand there,
but really, it was the same 60grand, right. So you have to be
spending time checking itproperly, to make sure that you
know, show more income than youactually is. And then, but in

(06:50):
terms of the clients, so whatI've found, I guess, maybe more
inexperienced workers or eveninexperienced customers that
have got credit issues, so theymight end up going applying for
a payday loan. So someone that'sgoing to fund, give them capital
straightaway, and then they'llpay it back with the next
paycheck. That's, that's a redflag. So if you've got them on

(07:14):
your credit file, that could bea decline, even though they
would just for a particularwindow of time that you needed
it, that could be the client, sosomebody like that could affect
you, a default that you've hadin your credit file from a few
years ago, that, you know, thatwas also a period of time where
you weren't able to, you know,make your payments, and still on
the file. So that could also bedeclined. But again, you can

(07:35):
find this stuff out before youeven, you know, hit go. And, you
know, cover that off with yourcomments, you know, get an okay,
from the bank, I tried to dothat they called you know, you
get a credit scenario, you sendit to the bank and say, Look,
this is the situation, this isthe strength, can we actually
do? Can you approve it based onthis situation? And then they'll

(07:57):
say, Yes, subject to fullassessment. And if we have that,
then we should be good to applyfor the loan.

So mate, how do different types of loans such as
like personal business, ormortgages differ with the
approval process,

probably more than anything else, it's the
timeframe it takes to getapproved. So the more I guess a
larger amount you apply for, thelonger it can take, because
there's more moving parts, it'smore risk to the bank. And also,
there's a larger asset. So ifyou're purchasing a property,

(08:34):
this, obviously there's going tobe a mortgage required, there
might already be a mortgage,because somebody owns the
property. So they have to valuethe property that can take time.
But if it was a car, forexample, you know, cars, they're
quite easy to determine ifthey're real or not, you just
still PPSR search, you know,security property search to see

(08:59):
if it exists, the VIN search,and then the money can really,
you know, exchange hands withina couple of days. But property
as well, there's contracts, andthose contracts have settlement
periods, which can take sixweeks, sometimes even longer.
So, but the approval itself,depending how good you are with

(09:19):
the data, you presented thebank, you can get approvals in a
few days with some banks. Andsome lenders actually can take
longer, it can take a week ortwo. And it all depends on how
much volume they have, whatthey, you know, their turnaround
times to process that. But yeah,it all just comes down to I
think complexity and mountainborrowing, the type of asset

(09:42):
they're buying. And also eventhe type of customer if you're
self employed, it's going totake a bank longer to come up
with a credit decision versussomeone who's PAYG

Yeah, it blows my mind that like how easy it is to
get car finance, like Obviously,like, for the bank, that's an
asset to them, because they'rewriting a loan, the loan is an
asset to them. But to the actualborrower, the car is a
liability, like, unless you'reusing it to make money through

(10:15):
Uber driving, or like doingdeliveries and stuff like that
for like Amazon, like, it's aclear liability. So like, if the
bank was like going to lendmoney to you in the best like,
in like, basically, they tryingto lend to you for the best type
of asset for your particularfinances, they would, it would
be flipped around, it would belike, Okay, let's buy your

(10:37):
house, because that's going tomake you a lot more money in the
future. Because it's going tohave time in the market, it's
going to appreciate over time,it's going to be a real great
asset to you, obviously, likethe values are way different.
But like, in terms of like theother songs, like let's get you
a car, let's make sure you havehuge rip, like big repayments
for that car, and it's aliability to depreciating asset,

(10:57):
and it will not grow your wealthat all. Like it's just really
funny how like the difference ina liability to an actual asset,
which the banks are actuallytrying to happy to loan like,
below process quicker to you.

Yeah, I can see why you can look at it from that
angle, right? When you bet,like, the more you benefit, the
longer it can take. And theharder it is. Right? Yeah, but
But for them, the lender theybenefit. And they'll turn it
over quickly, because that justmeans income straight to their
bank, whatnot. Yeah, I can seethat angle. But look, I don't

(11:31):
think that's a deliberate thing.
I think it's just a matter of alot more moving parts required.
For property, it's more complex,there's mortgages, other
interest on there, there's, youknow, different banks already
have an existing mortgage onthere. versus, you know, a car
that's like, you know, buyingfor a dealership, it's clear

(11:53):
title, you just register, youknow, an interest when you buy
it, and it's nice and quick. Andalso the availability of
capital. That's another thing.
The reason why Car Loans getapproved so quickly, and a lot
of the time it's lessdocumentation. It's because
we're not talking about a lot ofmoney, right? 3040 50 grand, it

(12:17):
might be a lot to a lot ofpeople. But to a lender, it's
not like they lend out billionsof dollars. Whereas when you're
lending millions of dollars forfor a property, yeah, what's a
larger sum, there's more rulesaround making sure that the,
they're going to get their moneyback with interest. Because they

(12:40):
don't lend out their own money,or they borrow it. So if
remember the defaults everybodyloses. So

yeah, of course. So we'd like car loans, obviously,
with property. There's also alocation aspect as well, like
some banks will only loan tocertain locations, with a car
loan, that probably doesn'tapply does it at all, because a
car moves.

It doesn't apply in terms of location, but it
does apply in terms of the assetitself. So what I mean by that
is, some most lenders for carfinance will have a age
restriction. So you can't go andfinance like a 1980s car or a

(13:24):
60s car, because it's, it's tooold for them. The resale is
difficult, right? So they mighthave at the end of the loan
term, the car must maximum be 10years old. Don't Really Care
About kilometers, I thinkthat'll be very hard to sort of
track. But they do look at ifit's private sale, if it's

(13:46):
dealership, so how old the caris. And whether the car is going
to be for business use orpersonal use, all of that will
come into into the equation. Andsomeone says a blanket rule. If
the car is too old, we won'tlend against it. And others will
be flexible. So yeah, it's notthe same as property because I
did experience that recentlywith a with a client wanting to

(14:06):
buy in, in South Australia. Andit's sort of regional town. And
lenders consider it a categoryfour location. So what that
means is that it's yeah, it'sobviously it's not Metro. And if
you think cat one, category one,category two, three, so four is
like, you know, the bottom ofthe pile. There's not much

(14:29):
population at all. There's notmuch industry there. So really
reselling the property would bedifficult if it defaulted.
That's and if it's reliant on ontenants to pay them the rent in
order to cover the mortgage,then relating it would be
difficult as well. So that's whythey look at location.

Yeah, of course. So mate, how long does it usually
take like typically from loanapproval to actually seeing the
funds in your bank account.

Honestly, it's can be a very quick process. So the
main thing you have to do issign loan documents, once it's
approved, if it's a property,you know, and you and you would
have seen this, some of thelisteners, if you've, if you've
bought in a company or a trust,there's a lot more documents
required, you have to get legaladvice, you have to get

(15:26):
financial advice, as guarantordocuments is witnessing
documents, they need wetsignatures, you know, you need
to post it back needs to bechecked, all that process can
take a little while. But ifyou're good at paperwork, you
can do it in a day, send it backby express bus, it can be
checked, and then good to go,then it just comes down to
aligning the date with theseller to sell is ready to

(15:49):
receive the funds. Andobviously, they've probably got
a mortgage as well, they need topay up to that their lender
needs to be ready to receive thefunds that can take the whole
thing, from from approval tosettlement can be days. And it
can also be weeks, depending onwhen everyone else is ready.
With a car or a personal loan,you know, it can be same day.

(16:11):
It's all electronic. Now, a lotof the time you signed
documents, if it's you know,DocuSign and they transfer the
money, you experienced that withyour car, like the money was
paid the same day it wasapproved pretty much a couple of
days after.

Okay, yeah, which kind of like property finance
was as quick as car financebecause I was shocked how how
quick and easy car finance was.
I mean, like, it's no wonderthat, you know, there's a cost
of living crisis. Everyone'sdriving a brand, like beautiful
new car, like I've, I have neverreally had a really nice car,
and I still have a you know,just average, you know, Hyundai

(16:48):
Santa Fe, it's like a 2017model, there's nothing feel
flashy, it's just gets the jobdone. It's just nice, and you
know, has a bit more room. Butpreviously, we were driving like
older cars. But like, everyonenow has a really nice new car.
So like, it's like a good, I'dsay about a five to $600 payment

(17:09):
per month, like just on a carloan, you know, so it's no
wonder that like, people have somuch debt now an extra cash like
cash they need every singlemonth, let alone to be able to
buy a property and put amortgage on it. You know, it's
just crazy.

Yeah, I, I'm working on one at the moment
where these clients came to meand they want to buy another
investment property, they've gotfour at the moment, and they're
looking at buying the fifth. Andthey're pretty squeezed for
borrowing capacity. But Inoticed that they've got two car
loans under their names,totaling about 40 grand

(17:53):
approximately, maybe a bit more.
And their repayments are likethat exactly what he said $600
or whatever it is per month. Butbecause we got equity on their
properties, we can consolidatethem. So that's what we're
doing, we're actually justpaying out the car loans with 40
grand of equity. And then we'reusing the rest of the equity to
come up with a deposit to buyanother property. So it's like,

(18:14):
you know, people don't realizehow much of an impact that has
on them at the time. You're theywant, they want the car, they
want the convenience. They want,you know, to look good when
they're driving on the road. Butthen when they want to grow the
portfolio, or set themselves upfor the future, it's it can be

(18:35):
hindering them. So hopefully,they're got enough equity in one
of their properties that theycan consolidate at some point.
Otherwise, you're stuck with acar loan for you know, five to
seven years. But if you if yourrepayments are low, you're not
borrowing that much, or you comeup with a big deposit, you know,
a couple 100 bucks a month,whatever it is 300 400 It's not

(18:57):
going to have a massive impacton your bar.

Yeah, because the reason they would do that, and I
can basically break it break itdown, is because the the equity
that they've drawn out, is atlike a 6% interest rate. Let's
say that's probably what it isaround that Victor, and then the
car loan, is it like 10 or 15%interest. So it makes sense to
use the cheaper money to paythat car loan down. So you're

(19:26):
paying less interest, eventhough you're still like
borrowing money to pay the cardown, but it's like half of the
interest. So obviously, thatwould be better.

Yeah, also the term that you have to repay it.
So like when you take a car loanout, as I said earlier, the
maximum you can get it say fiveto seven years. And that's
because the asset isdepreciating. It's not going to
be worth much. So lenders don'twant to hold the debt for too
long because it's just not goingto be how much of a resale value

(20:00):
Whereas property, it's going toprobably go up in value. So
that's why they'll give you 30years, because their risk is
actually reducing, alright, fromthe bank's perspective, the
debts coming down and the valueis going up. So for them, the
risk is less and less, andyou've got a repayment history.
So that's why they'll stretchyou out for 30 years, no
problem. So when you take outyour equity, and you consolidate

(20:22):
your car finance, you canstretch it out over 30 years
now. Which brings down yourminimum repayment, you can still
pay it off in five to sevenyears, right? You have the
freedom to do that on a variableloan, but the banks minimum is
over 30. So therefore, yourserviceability is

Yeah. And what you can do is you take out the
equity, you pay down the carloans, and then with the rest of
equity, the big chunk of equity,then you buy a cash flowing
piece of real estate, then thecash flow from that real estate
pays the cars off for you.
That's how you do it. You getthe best of both worlds. That's
the way Exactly

yeah, that's

awesome. Yes, sir.
Can you explain some of thecommon terms and stuff that you
hear thrown around by banks andmortgage brokers? And let us
know like, if there's anydifference? So is a pre
qualified is pre approval, andthere's approval in principle?
Are they all the same thing? Ordo they mean something
completely different?

Yeah, terminology, yeah, like,it's funny, you say
that, because I, you know, this,I used to work for a bank, and
they had their own acronyms whatthings mean, and, and then
became a broker. And then ofcourse, some of those I still
carry, right. And brokers usesome too. And because we
communicate with banks, we tryto use some of them. Example is

(21:48):
AIP. Alright, so AIP stands forapproval in principle, all
right. And then it also meanspre approval, same thing,
synonymous. The two words meanthe same thing. But I try when
I, when I call my application,when I title them, when the
customer sees the name of it, Icall it pre approval. And once I
don't see it anymore, I call itout IP, because I don't want

(22:11):
them to be what? I'm going toexplain it right. So but yeah,
essentially means the samething. It's, it's approved, in
principle, because it's notfully approved, or nothing. I'm
conditionally approved versusformally approved. Those also
mean the same thing, right. Andit's, funnily, it's funny,

(22:33):
because you can have anunconditional contract of sale
on a purchase, and anunconditional loan approval, but
then you can have settlementconditions. So technically, it's
not unconditional, right? It'sstill settling condition. And so
the difference is, when it's apre approval, there's no

(22:54):
property, right? AIP approval,in principle has no property. So
they've, they've approved your,your credit history, they've
approved your serviceability,they've approved a certain loan
amount, based on yourcircumstances, subject to a
property, or in a car in a plugfor people for a car subject to

(23:16):
a particular car. So then youneed to get the asset and say,
here's the actual asset that I'mbuying, can you now give me an
unconditional approval orformula. And then assuming that
stacks up, then they'll give youthe last the final approval, or
the formal final, unconditional.
And what's the other one, yousaid pre qualified. So pre
qualified look, honestly, thatdoesn't really get used that

(23:39):
much in in mortgages, definitelygets used a lot in the personal
loan space and cafe finance, getpre qualified. And those are
like before a pre approval. Sobefore you even apply for the
loan, you can pre qualify. Andthat's by doing like a credit
check, or a soft credit check.

(24:01):
So they basically look at whatyour credit score is. Sometimes
they'll also do a bank statementintegration. So a lot of these
fintechs and smaller lenders,they'll they'll actually have an
algorithm program that willactually scan your bank
statements and automaticallycategorize them, and it will

(24:23):
flag anything that's negativelike late payments, you know,
overdrawn fees, overdrawnaccount, you know, payday
lenders, whatever it is, thethings that can be negative, and
also check the salariesconsistent. So it's not dropping
and whatnot. So that's where youcan kind of get a pre qualified

(24:45):
loan because it will check thatbased on a computer algorithm
does no human checking it soperson checking, and then once
you're ready to actually apply,usually it's easier if you've
already been pre qualified,because then it's just verifying
Okay, the bank says, was theprogram telling me yes, okay, it
matches the same, it looks good,tick, tick, tick, move on

(25:07):
approved. So it makes it easier.
But if there's no algorithm,checking all that stuff pre
qualify, then you'd literallyneed a human to check it, to go
through the statements line byline to check the pay slips, to
times takes more time. And, youknow, obviously, error, big
data, if you're looking at 12months worth of bank statements,
person checking, it could betired, right, they might miss

(25:29):
something. They might be in abad mood, whatever, from the
previous one. So they might havesome, some some bias and like, I
don't like this, so I'm gonnadecline it right. So they're not
looking at objectively. So it'sa fine balance for a lender
because they want to lend moneyto make money. But they don't
want to take on too much risk tolend money to everyone. So it's
like the saying yes, whilsttrying not to say yes to

(25:52):
everyone saying no, well, I'mnot trying to say no to
everyone.

They can do that.
with humans. Like, we do haveunconscious bias, as well. Like,
if you've like, out about you'rein a bad mood, or, you know,
things do happen during yourday. And you see, someone's
like, he's always going to befucking McDonald's. What's he
going to be Donald's again, for?
Like, he's like, three timesthat day? Blind, you know, so

(26:21):
yeah, yeah. So I just went ontopic. preapprovals, can you
just explain, like inresidential property, why you
can get a pre approval. But withcommercial property, it's not
really the same thing. You don'tget a pre approval for a
commercial property?

Yeah, okay. So the main reason for residential that
you can get a pre approval isbecause there's certain simple
rules that they can put in placeto accept the property or
security. It's not toocomplicated. It's either an
owner occupier, or aninvestment. It's either in a

(27:03):
desired location, or it's not.
Of course, if it doesn't fit themold, and it's different type,
whether it's, you know, youknow, primary production, you
know, rural, you know, it's gotan element of commercial into
it, then it's usually a blanketrule, decline, doesn't don't
accept it, it's not a type ofsecurity, or it's too large,

(27:24):
whatever. So a lot of it comesdown to the actual individuals
borrowing the money to, becausehouses, if they miss properties,
houses, units, whatever, as longas they fit those particular
parameters, then it's going tobe approved on the property,
they don't need to kind of digtoo deep per property to figure

(27:47):
out whether they'll lend themoney, the bigger credit
decision comes down to theindividuals applying to the loan
or the guarantors. So theircredit history, like we talked
about employment history, theconsistency of their income, all
that sort of stuff. That's,that's how they decide. So
that's why they can give a preapproval because the majority of

(28:08):
the decision lies there. Butwhen you buy commercial, it's
less reliant on the individuals.
That's why people set up SPVs orspecial purpose vehicles,
instead of trusts companies toown the assets. You know, it's
and then that usually, they, youknow, usually it's an

(28:30):
investment, but they're notneeding to put so much of their
own money to maintain the loanrepayments. Right, they're
collecting rent from anothertenant to cover that. Unless
it's an owner occupier, right?
If you're if you're a business,and you're trading from that
from that particular premise,then yeah, look, the pre
approval would be probably inyour favor, because a lot of the

(28:50):
decision is going to be on yourability to repay the loan, but
for an investment, it's going tocome down to the actual, the
asset. So is it a riskier asset?
You know, is it a specializedasset? Or is it just a regular
commercial properties that arein office? Is it industrial? Or

(29:15):
retail? And then, moreimportantly, what are the lease
terms? Who's the tenant that'sactually renting this property?
And what's the history of payingtheir rent on time? And their
history in business? So, solike, you're not going to know
that if you apply for preapproval, you don't know any of
that stuff. So in a way, there'sa term that it's not worth the

(29:38):
paper it's written on. We heardthat before. Well, that's,
that's essentially what that is.
If you apply for paper paper forcommercial property, it's not
worth the paper it's writtendoesn't mean anything because
the moment you give him aproperty and I'm like, that
doesn't suck, but I'm preapproved. So what and especially
if you're doing a late startfloat, right? The stock loans

(30:00):
don't require anything to dowith individuals. They just
they're there, they prove theiridentity. But the approval is
based on the on the lease,right. So that property is
what's going to determine ifit's going to be approved or
not. And the valuation as well,that's another thing. So
Residential Lending, they, theycan rely on ATMs, automatic

(30:23):
valuation model desktopvaluations. So literally someone
on the computer doing a quicksearch, checking, recent sales,
and curbside, so someone goesout takes a photo from the
outside, make sure the houseactually exists, not knocked
down or whatever. And then theydo a bit of data search. So that
even those are less costly,they're much faster to

(30:46):
determine, some of them aren'teven like, with no human
involved at all, like the AVM.
And then there's a long formvaluation. So non bank lenders
will want an actual long, longform, sorry, short form
valuation. So it's like fourpages, whatever. But it still
requires a full inspection. Andthat can cost a few 100 bucks.

(31:07):
But for commercial property,it's always a long form, which
means it's like 1820 pages, is alot more research and data that
goes into it to determinecertain things. And it's not
just comparable sales, right?
It's cap rates, its cost persquare meter. And sometimes just
getting the comparables isreally difficult because there
haven't been recent sales ofthat type of property, the net

(31:28):
lettable area they check. Sothere's quite more as quite a
lot more information that goesinto that. And the banks rely on
this, lenders rely on this inorder to make the decision to
lend on on it. So that's whypeople typically won't apply for
approval, we run the numbers, wemake sure that that hypothetical
rent will allow serviceability.

(31:53):
And then if that takes, and weknow the credit history is good,
then there's no point inapplying for pre approval. And
that's why you always have tohave a finance clause, right. So
if you buy commercial property,it's not like residential, where
you can go in, you know, wavesof cooling off, no finance, it's
very risky if you do that,because it's not many lenders
that will do the finance foryou. And the ones that will may
not give you the most favorableterms. And so having a finance

(32:16):
clause will allow you to get outof the contract in the event
that you don't get the financeterms that you're after loan,
amount, interest rate, whateverit is phase, or get the client,
right, so you can still get outand get a deposit back. Whereas
residential, many people commit,because they know they're
already pre approved. And thenthey can just, you know, find a
good property. That's nothing,you know, out of the norm, and

(32:39):
it will be approved. That, yeah,that'll make sense.

So yeah, it definitely makes sense. And the
finance clause doesn't actuallyhave to be separate from the due
diligence, cause I think we liketo separate it sometimes to make
it more clear for the opposingparty. But in essence, the due
diligence, finance, getting thefinance and the property should
be part of that. But sometimeswe we have a due diligence

(33:04):
clause, and then we also have afinance clause, as well, just to
make it a bit more clear. Ithink maybe for the, for the for
the buyer and the seller,probably while we do that, but
it's really it's quiteinteresting. So might some of
the red flags or common mistakesindividuals make on their
application that can delay theapproval process? What are they?

(33:27):
And how can we get it back? Andhow can we avoid them.

So probably a lot of it has to do with debts and
knowing all of them. So peopleapply for credit cards, they
forget, you know, they get bynow pay later, they forget. They
don't consider hex debt andactual debt. So they don't type
it in when they fill out thefact fine. This stuff can

(33:51):
actually slow down applications,because borrowing capacity or
capacity to repay. That's one ofthe fundamental things that if
not the most important thing,when any lender is approving a
loan, do you have the capacityto repay so any debts that you
have need to be accounted for.
And a lot of the time, it's hardto get the information as easy.

(34:16):
That's probably one of the oneof the challenging things if
someone's got a lot of loans.
And we need to know what theloan limit is, what the loan
balances, what the interest rateis, what the repayments are, how
long the loan term is, what thematurity date is. If it's fixed

(34:40):
when it's coming off or fixed,if it's interest only when it's
coming off interest only thatinformation sometimes it's
really hard to get from multipleloans or multiples loan splits
for some people got five loansplits on one Latin and then
they got five loans. So that's alot of loan splits. And, and
each of them we need we needthat information for all of
them. So getting that sometimesit's tricky. And if there was

(35:02):
like a smaller lender, Iexperienced this recently,
actually with a client that iswith a lender that's very
uncommon, there are Ukrainianbank. And getting that
information was really, reallytricky. So we went backwards and
forwards for like, two weekstrying to get it. And yeah, and
so if you have that stuff upfront, and let's I mean, get it

(35:24):
from netbanking. Like, you justgo on to the, you know, your
Loan Summary page, you can do ascreenshot of that on your phone
app, or on the computer. Andthen you provide that loan with
the statements, getting thetransactional statement history
for the most recent month can betricky as well. And so like at
the moment, we're in October,and if someone downloaded the

(35:45):
most recent loan statement, itwill probably get them up to the
end of June, beginning of July,but that doesn't cover it, what
happens to the last four months.
So that so they need to, theyneed to extract the transaction
history to show that theirpayments are up to date, to show
what the current balances andall that other information I
just mentioned earlier. So thento get that they need to extract

(36:06):
it as a PDF. So I always find itfunny when somebody when I asked
for these dates, and somebodysends me a spreadsheet, a CSV,
like, what am I supposed to dowith that? Like? Like, do you
really think of banks go to lookat a CSV and say, okay, that
must be the balance, like, youcan literally go in and type

(36:26):
whatever you want in there.
Sometimes, when you go into netbanking, and you say, extract,
there's no option, say print toPDF. So that's all you can get.
So I understand the you know,why people will send that but
logically, it just doesn't makesense doesn't verify anything.

(36:48):
All right. So yeah, that'sthat's something that, you know,
can definitely slow downapplications. What else?
Documents? Yeah, look, taxreturns, definitely, that's
something if you've got, ifyou've got multiple entities, or
even one, if you're a company,you know this, you need the last

(37:10):
two years worth, and you may nothave that at hand, or your
accountant has it. So then nowyou're waiting for the
accountant to send it. And thenthe accounting might take a
while. So having that invoice,one claim folder ready to go. I
think that will be important. Sothat when you're ready to apply,
just upload it or email it orwhatever it is, and and your ATO

(37:31):
notice of assessment, they usedto post it in the mail, and now
they just make it available onmy gov. So just log in, go to
ato Porter and just download it.
Yeah, having that ready. Andwhat else? Yeah, I think in
general, just filling out thefact fine. So, you know, every
broker has got a differentprocess on getting a fact fine.
And the fact find is just what'syour, you know, address history,

(37:53):
employment histories, assetliabilities, expenses, and your
needs and objectives. Like thisis a requirement for every
application, and how to capturethat. It's always a tricky
thing. For every every broker,every customer, not many people
like to fill out long forms, Iget that. But a broker doesn't
have the access to thatinformation. Unless you want

(38:16):
them to sit on the phone withyou for an hour or half an hour
asking you a question byquestion. It's, I think that's
counterproductive. I thinkyou're better off doing it on
your own time when you got somefree time. And just just
preparing yourself mentally, notdonor distractions. And just
Sarah, I'm going to fill thisform out from start to finish,
upload all the documents and I'mdone. You know, not dragging out

(38:36):
for a week or a few daysforgetting about it and then
procrastinating it. Because thatcan also slow things down for
everyone. And then last minute,if it's for purchase and you got
finance do And now everyone'srushing last minute, because
because they didn't get theinformation upfront.

Yeah, 100%. I mean, you have a great online portal.
I think when I was filling outfinance when you're doing
refinancing for me, I think ittook probably about an hour,
hour and a half just to get scanall the documents and put
everything in there. But afterthat there was you know, very
smooth process. I didn't need toput anything else in there and
and it also probably slowed itdown. Because the property that

(39:19):
we refinancing, I own that withmy my my fiancee as well. So we
needed a little bitdocumentation from her. That
actually brings me to my nextpoint. So when you're co signing
a loan with someone, does thatslow things down? How does the
bank view cosigning loans?

Yeah, it can slow things down because you need
that fact find information forfor everyone, not every borrower
or every guarantor. So if youdon't have that information at
hand, so say you're filling outfor your wife, and you don't
know when she started her job,you don't know who her boss is
the contact number. So you needthat information. So you need to

(39:57):
ask her when you're filling thatform out or she needs used to
log in separately and fill thatout for herself. So now you need
to navigate that. So you'reavailable to come up with those
details. And then when you'reestimating your expenses,
usually you have one person inthe household that knows that
and the other one's got no ideawhat just pays and like, got no
idea what you spend. Yeah. Sothen, so then you need to

(40:18):
navigate that, right? Becausesome of the costs you can
estimate are the ones they arewhat they are, you know, fixed
costs, bills and whatnot, youknow what they are, you just
have to dig them up, if youdon't have it readily accessible
takes your time. Or you need tocheck with the with the other Co
Co borrower that actually knowsthat information, or they're the
ones that store all thepaperwork. And then, you know,

(40:40):
when it comes down to ID aswell, so if you're married, and
they've had a change of name,you know, that can be a, I've
experienced that as a as a delaymany times where, you know,
they've changed their name, butthey haven't updated the
passport. And because I'm outthere, the passport, the bank
site, well, what's their actuallegal name? Well, the legal name
is, which is the married name,okay, well, where's the

(41:01):
evidence, and they say, I needmarriage certificate, and then
they send me the ceremonialmarriage certificate, which
doesn't mean anything, that'sjust, it's just to celebrate or
whatever. So I need the onethat's, you know, transferred
over the Ponderosa berries. Andthen sometimes they don't have
it, so then they have to go andapply for it, get it. So that's
a mission. And, you know, middlenames. So sometimes people

(41:23):
remove their middle name fromtheir driver's license, but it's
on the passport, or it's underMedicare, or whatever. So now we
have to find out what that iswith your birth certificate. So
it's just got to be consistent.
If your name is the same oneverything, make it nice and
easy. But general rule of thumb,your legal name will be your
passport, and your birthcertificate, everything else you
can change, or you can tell thelicense, I don't want to have

(41:45):
this, you know, make my middlename, my first name, blah, blah,
blah. But and then and thenchange of name is obviously the
next thing that can can trumpthat if you've changed your name
legally at birth marriages, thenwe just need a copy of that. And
then we can send it to the bankand everyone's happy.

So just to confirm your advice, your advice was, if
you want to speed up yourmortgage application, don't get
married, and make it a lotfaster process. So you just have
one legal name, don't even havea partner. Don't even cosign.
Don't have a partner, don'tcosign, don't get married, that
was the

that will make it easier to get the loan approved.
Just just the main thing is earnmore income like you are to
people. Then you can keepborrowing. Yeah, that's right.

Yeah, get married, if you'd like to.

Yeah, if you check, yeah, if you want to
change your name, that's fine.
Just change it everywhere andmake sure it's all consistent on
your documents, then it'll flythrough. Yeah.

So Mike, can you just give us like a rundown of
like, how, like, externalfactors, like economic factors,
like such as inflation, economicdownturns, like can really
impact the loan approval processas well.

Yeah, so I mean, everyone, who was, I guess, an
adult through the globalfinancial crisis, would know
that during that period of time,you know, 2008, till maybe 2012,
I'd say for that period of timelending was, was really
difficult. The rules around thatwere were changing, things were

(43:31):
getting more strict requirementswere higher capacity to repay
requirements were similar tonow. Rates were rising. So
during a periods like that,liquidity in the market, it's
much less of a much lessavailable capital. So then they

(43:51):
have to be much more, I guess,diligent in who they lend money
to. And because the risks arealso high in terms of high
defaults, then they also need tostart checking extra carefully,
that people information is true,correct. And it's not
fraudulent, you know, you know,what do they say? desperate

(44:13):
people do desperate things. AndDesperate times call for
desperate measures are sort ofsimilar things with, so they
have to be aware of that right,I have to be aware of people
that are doing thingsdeliberately to deceive and to
cheat and I have to make surethat then they're not allowing
stuff to go through. And theyhave to look for the ones that
are actually credit worthy,because there are going to be

(44:35):
people out there that regardlessof what's going on in the
economy, that if they still onlywill go cash reserves, and they
can still make moves. So thoseare the ones that lenders and
banks wanted to lend money to.
So it's obviously going to be apremium. So it's usually higher
interest rates, risk fees andthings like that. And also mark
players in the market drop outso there's been lenders and

(44:58):
banks that have literallystopped lending, they've said no
more, we're done. And, you know,a recent example of that, even
as in this current time is, isVirgin Money, you know, Virgin
Money is owned by Bank ofQueensland. And out of nowhere,
they said, We're no longerlending you money. We're like,

(45:19):
Oh, that's okay. I'm a bit of ashock. And bank bank with a list
also bought me back, as well. Sothey're maintaining the me bank
brand and the Bank of Queenslandbrand, but no more new lending
for Virgin Money. Right. Sothat's a resource that they're
cutting back. And now that's,that's less money available,
less competition, whatnot. Andan even more recent example, and

(45:42):
I'm letting you know, Andrew,because we haven't actually
caught up since this. But abouta week and a half ago, Adelaide
bank was owned by Bendigo Bankpulled out of the commercial
lending market. Oh, wow. Andthat's, that's really annoying,
because they were my go tolender for many reasons, then
moving forward, I can't use themanymore. And no, borrowers can

(46:03):
access their products anymore.
So I don't know the exact causeof that. It could add could
could be with the economy, butalso could be because they're
merging the brand with Bendigo.
And that's probably trying toconsolidate the products and
systems. So. But yeah, that'sobviously an impact. So you

(46:23):
don't ever know that this bankthat you go with this lender,
you go with this guy he's goingto be around. So you can think
they are and you proceed like,like, like, everything's normal,
but then all of a sudden, at anygiven time, they can just pull
out of the market. So havingoptions is always important to
to sort of shop around and beyou know, have backups and go to

(46:44):
different lenders that willcontinue lending course, the big
four will probably not goanywhere. But the the hardest to
apply for loans with andprobably the most, sometimes the
most expensive, depending on thetype of transaction as well. But
the you know, I think CommBankrecorded $10 billion in profit,
like so, they're not goinganywhere anytime soon. But even

(47:07):
then they're cutting, they'recutting costs as well, right,
there's a there's a new movementto, to automation, and to AI. So
because of that, there's goingto be more and more jobs lost
more staff that, you know, jobsthat don't need to have people
to fill them anymore. It's gonnabe computer programs that do a

(47:29):
lot of this stuff. And, youknow, how that will affect the
lending environment? Well, Iguess only time will tell. But I
think it will have to be moreand more transparent more than
anything else. Because in orderto make, you know, decisions
from data, well, the data needsto come through. In its raw and
fruitful and you can'tmanipulate it you can't, you

(47:53):
know, not disclose things, youkind of just say, Yep, here it
is. And am I credit worthy,right. So that will that will
have that could speed things upfor people that are credit
worthy. But the ones that arenot? Well, all you can do is
just Yeah, learn improve yourfinancial position. So then you
can apply again, in the future

people were so upset with, you know, the amount
of money that Commonwealth Bank,like made as a as profit, like,
it is a business like this asopposed to profit, like, I'm not
sure like exactly the ins andouts of it. But like, if they're
making money, that's whatthey're there to do. If they
weren't making money, theywouldn't be around. It's just

(48:35):
funny, like, bank is just abusiness that a very good
business that is there to makemoney, regardless of whether
they're charging high interestrates and other banks, if people
are willing to pay those rates,then they'll keep charging them,
you know what I mean? So it'sjust like any other business,
they're there to make as muchprofit exactly right.

And you as a consumer or a borrower, you
know, you can use the bank'smoney to help you create
financial freedom, right, youcan leverage that to put you in
a better position. And you don'thave to take out debt to put you
in the worst position. Likethat's, it's a it's available to
you, but you need to kind oftake that responsibility to, to

(49:17):
educate yourself, to have peoplearound you to guide you the
right way to actually use it foryour benefit, not your
detriment, right, because it canhappen both ways and it does to
a lot of people

100% So mate in terms of like, like how long it
would usually take to receivethe money after you get a loan
approved? Can you just give us aquick rundown on literally like
the time so like investors know,or new investors know what they
can expect.

It depends on what you're applying for. So if
you're applying for setColor ifyou've got the car ready to go
you expect you have the money inbetween one to five days? If you
don't have the car, well, youget the money when the cars

(50:09):
Abella, right? If you're buyinga residential property,
typically between four and sixweeks, right, that's the
settlement period. So if youapply today, yes, it might get
approved quickly or slowly. Butthe money doesn't exchange hands
until settlement happenssettlement is when the transfer
of the existing title will getmoved to your name. And that is

(50:30):
subject to the contract of sale.
And typically, depending whatstate it is, that's four to six
weeks, it can extend can be 90days, sometimes as in six months
settlements. But typically,that's person. If you're
applying for if you already ownthe property, and you want
equity release, so you'reessentially applying for equity
that you have as cash orconsolidation paying off other

(50:51):
debts, then that can vary. So itcan be I'd say, probably the
fastest you probably ought to doit would be around two weeks,
I'd say. But realistically, youknow, it can be done faster,
depending on the bank, if theyalready have a mortgage, there's
no new mortgage required.

(51:11):
There's no transfer of title.
It's just proved a loan, signingthe documents, nominate the bank
account, here it is done. Sothat can be done in a few days.
Some banks can take longer cantake, you know, if they have to
do a valuation on the property.
They need wet signatures anddocuments. So that might, that
might push it out a bit longer,maybe three weeks, possibly four

(51:34):
weeks, something like that. Youjust have to determine what,
like if it's about thetimeframe, then you may not get
the best rate. Sometimes theones that offer the best rate
are going to be the slowest.
Because the more applicationsthey have, the slower they are.
And usually the moreapplications they have is
because of the cheaper. Right?
So it's like you can't have itall. If you want it all. Well,

(51:56):
you can't have pick one. What'syour priority? You want fast?
Pay labor, Monterrey if you wantcheap, white bit longer?

Yeah, like private finance.

Yeah. Yeah, exactly. Private Finance.
Perfect. You have that same day,sometimes. Literally, same day
for like a million dollars ormore. Yeah, but you'll pay 20%
interest rate?

Yeah, I spoke to a private financier recently,
couple months ago. And they'relike, Yeah, okay, we can do it
for 20%. So 20%, holy bejesus.
It's a good, it's a goodbusiness to be in private
finance. Right now, sinceinterest rates have gone up?

Yeah. So maybe when you've got someone's just
gonna say, if I can avoidprivate finance, I will. But
sometimes it's a it's anecessary product, depending on
the circumstances.

100%. So in terms of like setting up offset
accounts, you know, back in theday offset accounts were like a
very, very good strategy, or itwas, you know, made out to be a
very good strategy. Can you justlike, give us your opinion on?
Do they really make a bigdifference on setting up an
offset account to try and paydown your loan quicker? You

(53:06):
know, obviously, you'reoffsetting the interest of your
loan, which is great. But if youhave no money in an offset
account, it's, you know, prettymuch pointless, when does the
offset account really make a bigdifference? And should the
listeners set one up?

Yeah. Okay. So with an offset account, they
typically have an annual feeattached to them, or a monthly
fee, depending on the bank. Andthe main thing is, if you're
able to offset the loan, morethan the cost of that annual

(53:41):
fee, and save on interest morethan that, then it's probably
worth it. But if you can't,because you don't have access to
capital, it's just going to beanother cost, right and ongoing
costs and unnecessary costs. Anddepending on the bank, or the
lender, some of them actuallygive you a bigger discount on

(54:01):
your interest rate, because youchose the offset product. So if
you chose a basic product, whichdoesn't have offset and only has
redraw, you're actually paying ahigher interest rate. So you
need to work out how muchinterest will I pay on the basic
loan with no annual fee? Nooffset? And how much interest
will I pay with the offset loan?
And including the annual fee?

(54:24):
Add those two up, which 1am Ibetter off paying. So sometimes
the offset loan makes more sensebecause you get that additional
discount. So even if you don'thave extra funds to offset,
you're still better off becauseyou pick the basic one, you're
paying higher interest, whichwhich kind of Trumps the annual
fee anyway, does that makesense?

Yeah, definitely.
Yeah.

But then if you go to a another bank, they'll have
the exact same interest rate.
With this, whether it's a basicloan, or whether it's an offset
loan, and the only difference isthe offset loan, you pay an
annual fee. So if If you'repicking a bank like that, and
you don't have access tocapital, when I'm talking, when
I'm saying 10, grand, 20, grand,30, etc, you don't have access

(55:06):
to that and you won't likeyou're exhausting every cent
that you have in order to buythis property. Well, what
exactly are you offsetting yourincome, right, your income will
obviously you have to pay themortgage or pay your outgoing
cost, and whatever's left, youcan offset the loan. But if
that's only 100 bucks a month ora few $100, well, if you're
paying 400 bucks a year, for theoffset account, you might as

(55:30):
well just go for a basic loanthat only has very variable
basic loan, because then you canjust put extra funds into the
loan, and has the same neteffect as an offset account. So
you're actually just payingreducing your interest each
month. And now you just don'thave an annual fee. That's what
I would recommend if you don'thave access to capital. But a
lot of people do have access tocapital, or they have parents

(55:53):
even I've seen that where peoplelike, Well, my parents have got
a house paid off in the city onhalf a million dollars with the
cash, well, they can actuallypark that money in my offset
account. And whenever they needit, they can access it. So now
they're actually reducing theirinterest on their home loan from
their parents money, becausethey've got an offset. And the
parents are the ones that haveaccess to another. I mean, of

(56:14):
course, they can still withdraw.
But typically, there's a trustfactor when you do that, right.
And so now they're getting thebenefit of an offset. But if
they had redraw, it's probablymore risky for the parents to do
that. Because when you don'thave offset, technically, it's
the bank's money. So you talkedearlier about economic

(56:34):
conditions? Well, one of them ishypothetical, you had a million
dollars loan, and you had nooffset account, and you put
$500,000 of your money into theloan, you would have 500,000
available, Rachel, and you wouldowe 500,000. But technically,
that's the bank's money, they'reallowing you to have access to
the money as a redraw facility.
However, in all, for allintensive purposes, that's a

(56:57):
principal payment. So if there'sa run on the banks, they can
say, sorry, you paid back thatmoney, it's no longer accessible
by Rachael, and you still owe us500,000. And they're like, hey,
whatever the other 500, or youdecided to put into the loan,
you've paid that back off theprincipal. Now we've decided we
need that capital, and you don'thave access to it. So that's the
risk. When you don't have anoffset. If you have an offset.

(57:20):
It's a bank account. It's yourmoney. So you have a city and
offset. You know, there's a runon the banks bank can't just
say, hey, we need to withdrawthe money from the offset and
put it into the loan like that.
They can't do that to your bankto your money. So it is
protected in that respect bysitting in an offset, because
it's essentially like atransactional account. It's not

(57:41):
necessarily paying for the loan.
So that's, yeah, that's anotherexample.

What about like with like offsets? Obviously,
there's a difference between ifyou have a principal and
interest loan to an interestonly loan, can you just explain
to us like, the differencebetween having offset attached
to an interest only loancompared to having the offset
attached to a principal andinterest loan?

Yeah, it's a really good question, because
this comes up quite a lot whereI have to explain it to many
people. So I'll try to explainthe best way I can, because then
I can just say, Hey, listen tothis, and then this will explain
it. Okay, so same example.
million dollars, right, yourmillion dollar loan, and the

(58:29):
loan is principal and interest,p&i. If you put $500,000. In an
offset account, you're payinginterest on 500,000. But you
still owe a million. But yourrepayments are still based on
what you owe, because you owe amillion. So you make p&i
payments on a million dollars,even though you don't owe a

(58:50):
million, hypothetically, only Ifeel familiar. Because you're
not paying it to the loans,you're not offsetting, you're
only offsetting the interest,you're not actually paying back
the principal. So the banks doexpect you to make principal
payments on a million dollars.
And that's where people alwaysget a bit frustrated, because
they're like, I only owe 500,I'm still making higher

(59:11):
payments. Well, you can't haveit both ways. In this instance,
you can't say I want to makerepayments of 500,000 while
still having access to the other500. Because now you're saying
that you haven't paid it back.
It's like, if you tell the bank,I don't want access to the 500k
anymore to your money, thenthey'll do what's called RE
amortization. So they'llactually remove the money from
offset and put it into the loanand then re amortize on 500,000

(59:34):
and recalculate repayments overthe remaining term, then you'll
get lower payments. But now ifyou ever wanted access to the
500k, again, you need to applyfor it again go through the loan
process, right borrowingcapacity, credit history, all of
that. If you did interest only.
This is where you get the bestof both worlds. In that if you

(59:57):
if you have million dollars andthe loan is injured sternly,
you're paying interest onlythat's it each month, the bank's
minimum requirement is that youpay interest. If you put
$500,000 into an offset account,then your interest is dropping,
right, the interest would changebecause now you're getting your
interest is calculated on500,000. So therefore, your
minimum payment is interest on500,000. So you're not paying

(01:00:21):
interest on the money, that'soffset anymore. So the 500k
interest rate essentially, andthe other 500k, you're paying
interest. So then, you'regetting the best of both worlds,
because now you still haveaccess to 500k, and your minimum
repayment has dropped. Based onthe remaining balance, even
though you still owe a milliontechnically, because the
interest is being offset, theactual interest charges dropped,

(01:00:42):
so your repayment has dropped.
And also, the othermisconception is that if you're
paying interest only you can'tpay principal. Well, that's not
true. You can pay principal, butyou've got the choice to pay
principal, when you want to payit not when the bank wants you
to pay. So you can still makeextra payments, pay it straight
on the loan, not to the offset.
At any given time, you can do itin lump sum, weekly, monthly,

(01:01:03):
whatever it is. The only caveat,I guess is that you have to then
pay a higher interest rate,typically for interest only
loans. But I think that thebenefit can outweigh the cost,
the other detriment of interestonly and I wouldn't win. It's
not really about your question,but I thought I mentioned it is

(01:01:25):
that it impacts your borrowingcapacity, sometimes. So if you
get an interest only low, thenyour borrowing capacity is at a
detriment, the longer theinterest only to so if you take
it out for five years, thenthat's affecting your borrowing
capacity for regular residentialconsumer lending. Any consumer

(01:01:46):
lending at this point?
Typically, if it's a bank,because they're gonna look at
your principal and interestremaining term when they
calculate repayments. So if youdid a 30 year loan term, you did
a five year interest only you'vegot 25 years left, so they're
calculating your stress testingyour repayments at 25 years p&i
principal and interest versus ifyou say that p&i From the

(01:02:06):
beginning, 30 years, you'vestretched out over 30, your
minimum repayment is lower theirstress testing 30. So now you're
able to borrow more. That'sthat's the only downfall I
guess. So what I try to do mycustomers is typically go for a
two or three interest only Max,because let's face it, you're
not really going to stick tothat bank for five years, you're
probably going to refinance inthat time anyway. So that gives

(01:02:29):
you the opportunity to thenrefinance, restructure and go
back to interest only again, foranother two years and other
three years. Yeah, exactly.

Andrew Bean (01:02:39):
And that's exactly the same thing I tell. Our
clients are police the propertyis that like, like, why would I
go interest only? Why wouldn't Ijust go p&i And I can start
paying the commercial propertyoff. And like, Well, you got
interest only because it givesyou the option if you want to
pay principal off, so you mightset it up. So you pay, you're
only paying interest. And thenyou can pay the principal enter

(01:03:00):
the loan, but then one month,you might have some huge
expense, you might add operationor something, and you're not
required to pay the principal.
So you have that flexibilitygoing forward to have lowest
repayments possible now, and ifyou want to you can set it up
with a 10 year pay down plan. Soyou are paying the principal
off, it's just not required fromthe bank.

Victor Lagos (01:03:24):
Exactly, I would I would put it exactly the same
way as you, you want to haveless financial pressure, right?
It's not just that you mighthave a change in circumstances,
right? You're, you know, one ofyour stops working you and your
partner, the other one, you havea baby one goes part time. So
now all of a sudden, you're whatyour loan got to prove that to
pay principal and interest.
Well, you're not in a position,you don't wanna have to call the

(01:03:47):
bank and say shit, I can'tafford it. I'm on financial
hardship. So paying interestmakes it makes it manageable,
and then go back to principlelater. And the other
misconception is that you canswitch to interest only whenever
you want. No, you can't. So alot of times people will apply
to apply for PMI and I just gotinterest only call the bank can
I get? Yeah, you can we need toapply for you to apply for a

(01:04:08):
new application. And in the backof the head, I can't because I'm
unemployed. But they won't saythat. So that's why but you
could do it the other way. So ifyou started interest only. And
then at one point, you know, yousell some assets, you get some
you know, you get pay increases.
You're like I don't want to payinterest on anymore. I want to
actually pay off the principal.
It feels really that importanttoo. And you wanted to see the

(01:04:31):
minimum payment changed. Youcould call the bank and say
please switch me to PMI and theywill do that and they'll give
you a lower rate. No financialassessment required. No
application required nodocuments, just do it over the
phone. But the other way if youwant to go from principal and
interest interest only now theyhave to reassess everything. So
that's what better to startinterest only switch it the

(01:04:52):
other way then otherwise youmight end up in a position where
you can't go to interest onlybecause

you're paying interest only and you're like,
hey, I want to change, you know,to p&i and that banks like,
okay, pay me more sweet. Youknow, of course they're gonna
like say yeah do it do it. Imean, come on me more but the
other way around, it's like,hey, you know like you're paying
this and now you want to pay alot lower price and they want to
pay less. Why are we doing that?
Let's check. Yeah,let's justcheck the situation.

Yeah. Yeah, exactly correct. That's a good
way of looking at it. Yeah. It'slike what do you owe your say
you owe your brothers for moneyand you'd be paying 1000 bucks a
month. Why? That reason just tomanage cash flow Give me back my
money.

So we will touch base on paying with an offset
account with paying the p&i sothat the actual like, I just
want to make sure like this ishow I think about it in my head.
So the actual repayments don'tactually change. If you have
money in an offset for a p&i,it's just it just changes what
portion you are actually payingdown, you know what I mean? So

(01:06:02):
if you have money in the offset,then you're paying down more of
the principal, but your actualinterest repayment does not
change. And if you have no moneyin that offset, then you're
paying more interest. So that's,in my mind, that's how it works.
That's how I understand it.

No, no. That's exactly how I explained it. It's
like, if you imagine you'remaking the same minimum
repayment, where the when youhave money in offset, well, then
because the interest is reducingeach day, each month, because
you remember, interest accruesdaily and charges monthly. So
the more often you put moneyinto the offset, and the more
amount you put in the offsetwill reduce the interest on your

(01:06:42):
monthly due date every singlemonth. And then when you see
that interest drop, but yourpayment is still the same, then
more of your payment will gotowards the principal, rather
than the interest. So thenyou're essentially paying off
the loan faster. So instead of30 years, by having money in
offset, you might pay it offinto 25 years or 20 years,
depending how much you keepadding in there. That's how it

(01:07:03):
works. But yeah, you explainexactly

splitting the mortgage might I've done this
before in the past where I'vehad a portion that's fixed a
fixed rate. And I've also had asmaller portion. That's
variable. And that's basicallylike to limit my risk against
inflation interest changes inthe market. Can you just explain
like, how splitting the mortgagecan be a good strategy when you
first buy a property?

Yeah, so look, it's very common that people
split their lunch, I usuallytell talk to my clients about
splitting it to get the best ofboth worlds part fixed with
limited risk part variable withmore flexibility, but more risk
in terms of rate increases. Butat the moment, it's a time in

(01:07:49):
the market where the fixed ratesactually higher than your fixed,
sorry, your fixed rates higherthan your variable. So by doing
that, you're kind of gambling toan extent, you're sort of trying
to time the market and say, hey,I want certainty. And for that
certainty, I'm willing to pay apremium. Because just in case
rates go higher, I want to knowthat I've locked in my rate,

(01:08:14):
even though because the variablerate will then go higher than
the fixed. So then at thatpoint, in the future, if that
happens, then I'm going to bewinning, essentially, at the
moment I'm losing, I'm takingshort term loss with the chance
that I'm going to get again, ifthe fixed if the variable rates
surpass the fixed rates. Sothat's, that's the time in the

(01:08:36):
market that we're in with, ifsomeone wants to do that,
there's no guarantee that thevariable rates will keep going
higher than the fixed. And wherethat can work against you is if
the fixed rate if the variablerates drop, because say next
year, they start dropping rates,and you fix the majority of your
loan. Well, you're in a bit ofa, in a pickle, as so to say.

(01:08:59):
Because if you want to get outof the loan, because say you're
you fix it at say, six and ahalf percent, and the variable
rate drops to say five, you'relike, dammit, I want to get 5%
rate when I'm stuck on six and ahalf and next two years. So you
say to the bank, I want to getout of the loan, I want to
switch it to variable, and theysay you can't do that. But now
you have to pay break costs. Andthose break costs can be

(01:09:21):
significant. It can be 10s of1000s of dollars sometimes. So
then you just say, Well, I'm notgoing to pay $10,000 in
breakfast, I'm just going tostick it out for the next two
years and pay six and a halfpercent. So by having the loan
split, then at least you'regetting the benefit of the
reduced variable rates for someof your loan. Right so then

(01:09:42):
you're not sort of thinkingDammit, I'm stuck paying fix for
this whole two, three years.
Some of its variable so you'restill benefiting some somewhere
when it drops. The other thingis the flexibility on on
variable. So if it's variable,yes, it can fluctuate up and
down. How Wherever you can payit off at any given time without
any restriction without anylimitation, like we talked about

(01:10:04):
paying extra payments, and youcan have an offset account.
Typically, if you have a fixedloan, you can't have an offset
account, there's only like twoor three banks that offer offset
on a fixed loan, but themajority of them don't. So
therefore, you've got theflexibility of offsetting,
making large principal paymentswhen you want, putting money in
redrawing it out, you know, allthat interest only offset, or we

(01:10:26):
talked about, if it's variable,you can do all of that, if it's
fixed, that can't do any of it.
The maximum you can pay extra islike 10 grand a year. And
anything more than that they canpenalize you and say sorry, if
you've breached your contract,you told us you're gonna lock
this fixed rate in. And now wehave to charge you break cost to

(01:10:47):
break your loan. So so that's ayeah, that's, I guess, the
downfall of having too much ofyour loan fixed, it leaves, it
leaves you without theflexibility. And if rates drop,
you're not getting the lowerrate, and you have no offset
account linked to it, typically.
So yeah, I think the obviouslythe certainty part, you need to
work out your budget, so yourhousehold, and if you literally

(01:11:10):
cannot afford it, and I havecustomers like this, where
they're like no, I've had fixedbefore, I just want to know that
this is my repayment, I don'tcare if rates go up or down, I
just need to know that I canbudget and know that if I can
afford X amount every singlemonth for the next three years,
or two years, whatever, then I'mhappy, I can save, I can pay
back debt. And that's fine, wecan do a fixed loan, and we can

(01:11:33):
only have a small amount,variable 20, grand 30 grand up
to whatever amount you believeyou can offset during that term.
So in two years, if you thinkyou can save 20 grand, then have
a 20 grand variable loan,because then you can pay that
off and still have access to itas redraw and have the
flexibility to pay it down. Butif you did everything fixed, and

(01:11:55):
all of a sudden you had all thisextra cash, and you're limited
in terms of where you can put itbecause otherwise you're gonna
lose your fixed rate or breakthe loan? Well, you probably
should have had some a variable.
Split law makes sense?

Yeah, 100%. And this is what like, it's, we're
in a bit of a, because we're atinterest rates where it's like
the average norm. So it's, it'sactually pretty uncertain
whether you should fix or youshould just wait. Like,
personally, I'm not going to befixing any of my loans. Sorry,

(01:12:30):
personally, I'm not going to befixing any of my loans for the
foreseeable future, because I dobelieve that interest rates will
come back slightly, but I thinkthey'll stay around this level
for a while now. Because this isthe average, it comes back down
to when interest rates are very,very low. People were fixing,
and that's created the mortgagecliff, can you just explain what

(01:12:52):
that is and how impactful thatis for like a lot of
Australians.

Yeah, so obviously, during that period of
time, when interest rates werereally low, people were fixing
it, you know, 2%, below 2%. Andthe mortgage cliff is that when
the loan comes off a fixed inthat period of time, they're
gonna now go to a variable ratethat's, you know, 6% or more.

(01:13:22):
And that's a massive shock tothe system, because their
repayments on 6% versus 2%. Asignificant and their household
may not be able to afford that.
And that's assuming theircircumstances haven't changed if
they've gone worse, less income.
And obviously, we have inflationand cost of living has gone up.
So maybe there's less disposableincome, that's a scary place to

(01:13:46):
be because now your loan isunaffordable. So then, if you
can't afford to keep the house,all you can do is sell it. And
then what are you gonna do rentor move to another area to buy
somewhere cheaper, and stillpaying a higher interest rate,
just less of a loan amount, butalso the mortgage prison. Now
the terminology term that's sortof thrown around, that's if

(01:14:09):
you're stuck with that bank. Soit's your because remember, they
can't call that that loan in itcan't say now that now that
you're on six and a halfpercent, and you on paper, you
could only afford, you know, upto say four and a half when we
assessed the loan, or five and ahalf. They can't just say now
you need to pay us the loan backin full. Right? They don't do
that the bank gave you a 30 yearloan. So they kind of have to

(01:14:31):
work with you to base based onwhat you can afford to repay.
And if you're wanting to get abetter interest rate, because
they've put you on say six and ahalf, but you know, a competitor
will give you say, I don't know5.9 or something, or you want to
refinance, and logically youthink, well, if I'm paying six
and a half now and another bankis paying paying me 5.9 Why

(01:14:54):
can't I get the loan? Becauseit's lower. So if I can, if I
can show that I can pay the sixpoint five, then I should be
able to get the loan 5.9 Becausethere's lower payment, right?
But it's not as simple as that.
The banks do a stress test. Sothey calculate 3% above the
actual rate. So they're going tostress test your situation and
say, Alright, fine pay 5.9 onthe new new loan, on the
existing balance, you've had thesame balance, or it's come down

(01:15:17):
slightly in the last two orthree years. We're gonna
calculate that instead ofcalculating 5.9. We're gonna
calculate that at What's that8.9? All right, so can you
afford the repayments at nearly9%? Probably not. And because
you can't, they can't approvethe loan for you, even us the
exact same amount the alreadyup. So that's the prison that

(01:15:38):
you're in. Because you can't geta new loan to refinance, you're
stuck with the same bank thatoriginally lent you the money.
So you're at, I guess, you'rethe control of whatever they
want to charge you that unlessyou sell, that's the only way
up. So the way the tackle thatso that people still can have an
opportunity to refinance is fourbanks or five banks have come up

(01:16:04):
with a streamline process with aspecial APA ruling, where they
can use a 1% buffer instead of a3%. buffer. So if they can get a
rate of say, 5.9, they'llcalculate it as 6.9. So if they
can still show some level ofaffordability, that stress test,
then they can still refine it.

(01:16:26):
But to be honest with you, Ihaven't done many of them, I've
done like to the most of peoplewho are with a bank that they're
in a mortgage prison, typically,the banks have been flexible in
giving them a competitive rate,what the in terms of what the
variable rate would be that themarket is offering. So so

(01:16:48):
they're not in a way they are ina prison, but the prison is
giving them a rate that theywould get anyway, so that's
okay. Right. It's only if thatbank is not giving them a
discount, if they're notmatching other banks. And
they're just forcing them to paya higher rate. That's when that
that's, it's obviously not agood situation to be in. But if

(01:17:10):
they're willing to price it foryou, and bring the rate down to
whatever the markets offering,then yeah, that's, you're pretty
much just the best you're gonnaget, to an extent leads for this
period of time. Becauseremember, if you're adding 3%
buffer, well, then that meansthat you're protecting the
market for rates to go up to 9%.
But realistically, will they goup that high? What market
conditions? Do we need to be infor that to happen? I don't

(01:17:33):
know. You tell me like if peopleowe more than a million dollars,
if they're paying 9%? Well, I'mpretty sure most people aren't
going to be borrowing moneyanymore. And that's gonna affect
the economy at large.

Yeah, there has to be like some, you know, sense in
the actual rate that they'reputting on top of the of the
rate that's already there. Like,because we were so low, because
it was like literally, likerecord low interest at 2% 3%. On
top of that was actually prettyfair, it's actually probably a
little bit on this, it probablyshould have been like 4% to get
us like this, like 6% Like whereit could go. But there has to

(01:18:10):
be, you know, a little bit ofsense on like, Okay, well, is it
gonna go to 9%? Probably notlike that. That's a really,
like, we've already like, have ahuge cost of living right now,
CPI is going down, althoughpetrol prices are still up a
little. But realistically, therehas to be some sense saying it's

(01:18:32):
probably not going to go to 9%.
And if it is, there's gonna besome economic catastrophe again,
like he's just gonna be way toomuch interest for people. And
there's gonna be some serious,like, ramifications from that.
And there already have been, ithasn't been like, as hugely
widely reported, but people havebeen having to sell people have
been losing their houses. It'sjust not widely reported. But in

(01:18:55):
terms of like, where theinterest rates could go, now, if
we're at like, you know, six or7% for a commercial property,
then the actual buffer they puton, it should only be like one
or one and a half percent, itshould it should be minimized,
like it has been with thatproduct you're talking about.

Yeah, yeah, exactly. Right. I think that's
probably where things will go atsome point next year, where they
realize that rates aren't goingto go that high. So they're
probably going to go across theboard and only put a one and a
half percent buffer, or 2%buffer, maybe max, to allow more
people to borrow and to keep theeconomy moving. And one other

(01:19:38):
thing I wanted to touch on,which was the livestock product
for commercial property. Sothat's a that's been a tough
product to get across the linesince we've had rate rises
because because of the raterises, they've added on the
stress test calculations on theway they calculate the interest
coverage ratio. But one of theThanks. And I won't tell you who

(01:20:01):
that bank is because I need todetermine your circumstances
first, but one bank has justcome out with a new list of
products in the last two months,and it is basically blowing the
other banks out of the water interms of borrowing capacity,
it's back to what it was, it's1.5 times interest cover ratio
on the actual rate, it's up to65% LVR. And we're talking about

(01:20:24):
rates between 6.54 and 6.59%that we're getting right now. So
if we're netting net percent net6.5%, net yield, even 6.2, maybe
on a commercial property, thatshould be enough to actually
borrow 65% LVR. So if you canget 65 of that, right. And at
the moment, as a promo, I don'tknow how long that promo is

(01:20:46):
going to be, but they're waving.
Depending on which state you'rein, I've noticed that they're
actually waiving the applicationfee, which is up 2.75% of the
loan amount, so no applicationfee, and they're also covering
the valuation costs as well. Andyou can imagine that could be
two, three grand sometimes forcommercial property. So
essentially, next to nothing inphase, no serviceability
assessment, except for the rent,and you're getting 65% LVR. And

(01:21:08):
remember, I also do equityreleased to cover that deposit
as well. So if you've got enoughcapacity to to borrow the
deposit the 35% that you need,plus stamp duty plus a buyer's
agent fee. Well, you couldliterally get 100% loan and
otherwise wasn't possiblebecause you're borrowing power.

(01:21:29):
It won't be positive cashflow,if you borrowed everything, but
at least you're getting in,right. And if you've got access
to that, that equity, and that,you know, even if you've got
some cash contribution, youknow, I'm doing what at the
moment for, you know, one and ahalf million. So the max loan
amount is one and a half millionfor this product. So what's one
and a half minute What 65% Onone and a half million? What's

(01:21:52):
that? I don't know. I can'tcalculate in my head right now.
But that's that's getting themat least to two point something
million dollar property.

So it's a one and a half million dollar starting
deposit.

No loan? No, 1 million is 65%. So calculate
that. So if you want an opinion,make that 65%. Yeah, so divide
that by 65. And times that by byby 10. So it's not so divided by
six five times by 165%

of 1.5 million.

No, not the other way around. You want 1.5 million
to actually be 65% of x purchaseprice somewhat. Does that make
sense? So so the way I wouldcalculate that is one and a half
million divided by 65. Okay,times a by 145

Do that divided by 64 times 100. So it's 6307
summed up

by 100. See, so $2.3 million purchase price you
can get as a purchase price andborrow 1.5 million on a lease
dock loan.

Yes. Share what a bank doing that with me off air
because that sounds like anabsolutely Ripper product. And
if you want Viktor to also sharehow you can get some free money.
Give him a call. So Mike, wherecan listeners go to find out
more about yourself?

Okay, just for starters, no free money here.
You have to pay interest infees. Yo, pretty buddy. Well,
listeners, listeners can find meat my website Loggos
financial.com.au. Or they canjust google like US financial.
They can also find me on my ownpodcast, which is debt to

(01:23:52):
financial freedom. You'll findthat on YouTube, as well as, you
know, iTunes and Spotify. Andyeah, look, you can book in a
free chat. We can just get to,you know, see if your
circumstances allow you toborrow. It's no cost to have a
chat with me. And if we're theright fit to work together, we
can discuss where to go fromthere.

Alright, man, well, that's a wrap. This has been the
financial experts Victor Lagosand Andrew been on the financial
freedom series. Make sure you goand talk to Victor to get some
free money. He's just standingit out. Alright guys. See you
guys. Thank you.

Thank you. Thanks.
Cheers.

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Proven Solutions to Overcome Finance Approval Hurdles | Financial Freedom Podcast Ep 5

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Proven Solutions to Overcome Finance Approval Hurdles | Financial Freedom Podcast Ep 5