A Quick Overview
|Customer Goal||Refinance their investment property to consolidate debts and cash-out equity.|
|Problem||Limited marketability of the property due to a high tension power line traversing the property within 25 metres from the rear boundary.|
|LVR and term||66.91% LVR (loan to value ratio), 30-years loan term|
|Solution||Structuring the loan so that it met the DUA (Delegated Underwriting Authority) criterion of the bank.|
Mr and Mrs Rodrigues owned a duplex investment property. They were in the process of selling one half of the duplex and were looking to refinance the mortgage on the other half.
Refinancing would require them to payout the $500,770 mortgage balance to their existing lender.
The couple was also looking to consolidate their accumulated personal loan of $46,044, HECs loan of $17,260, and credit card bill amounting $4,992.
Also, Mr Rodrigues wanted to cash-out $230,000 to pay back his father for an interest-free loan he had given him.
Problem with a high tension power line
Refinancing for cash-out and debt consolidation is doable in most cases. But the couple was aware that due to the high tension power line traversing near their property, their chances of finding a lender were slim. So, for the most part, they remained sceptical.
High tension power lines at proximity to any property are not considered by mortgage insurers, making lenders conservative towards such cases.
Most homebuyers avoid properties of such type.
The salability or marketability of these properties presents a risk to the bank because they need to be able to sell the property quickly if you default on your mortgage.
Most major lenders limit your debt consolidation amount and the amount of equity you can cash out, as well.
The combination of a property near a power line, large cashout amount, and multiple debt consolidation made the case way too intricate for most lenders to accept.
If they were to approach banks without consulting a mortgage broker, their application would most likely be flat-out rejected.
The couple took no time in approaching us for help since we had helped them settle a loan for the same duplex property before.
We linked them with our specialist mortgage broker, Manish Rana, who had the necessary expertise in investment property loans.
Manish matched them to a lender with DUA that allows them to accept a loan on behalf of their mortgage insurer.
An advantage with DUA (Deligated Underwriting Authority) holding lenders is, they evaluate properties that could otherwise be rejected by their lender mortgage insurer, with comparative leniency.
The valuation report noted significant adverse impact of the high transmission power line on the marketability and value of the property. Therefore, our broker dropped the LVR to under 80%, for meeting DUA criteria of the lender bank.
With the prime concern out of the way, our broker now had to convince the lenders that his clients’ cash-out and debt consolidation, packaged with the refinancing of one half of the duplex, would not be a subject of risk for the lender.
Our broker succeeded in convincing the lender, presenting his arguments on the following grounds:
- The sale of the other half of the duplex would be settled, before receiving conditional approval from this lender, enabling his clients to pay-off the existing home loan.
- They would provide a statutory declaration to the lender for the cash-out.
- The loan services well only on the strength of Mr Rodrigues, while Mrs Rodrigues is currently a stay-at-home mom. Mrs Rodrigues plans to reenter the workforce in the future, which is indicative of better future income.
- After refinancing the loan, the clients would still have a net surplus of $500, meaning they can comfortably repay the loan.
A happy ending
When it was all said and done, the couple achieved everything they wanted.
They got one half of their duplex property refinanced. They consolidated their high-interest debt and were able to cash-out equity to pay off the father.
Consolidating their debt through a home loan, at a time when interest rates are at their lowest, enabled the couple to get out of expensive loans with high interest rates.
Their total loan commitments after they refinanced their loan reduced to $3,416 per month from $4473, saving them around $1,057 per month.
The couple was able to pay out their existing loans and get refinanced at a great interest rate. They were also able to cash-out equity, even though they initially doubted their chances of being able to do so.
Do you own an investment property?
If you’re considering buying an investment property or refinancing one with a nearby high voltage power line, please speak with one of our specialist mortgage brokers before doing so.
You can call us on 1300 889 743 or fill in our free assessment form.