A Quick Overview
| Details | Description |
|---|---|
| Customer Goal | To refinance an existing investment property and to purchase a new investment property |
| Problem | Unable to find lenders that accepted vested Restricted Stock Units (RSUs) as income for loan servicing |
| Loan Amount | $542,500 (refinance) + $2,100,000 (new purchase) |
| Security | $775,000 (for refinance) + $3,000,000 (for new purchase) |
| LVR and Term | 70% LVR (loan to value ratio), 30-years loan term |
| Income | $1,500,000 p.a. (70% from RSU) |
| Solution | Got connected with one of the only lenders accepting RSUs as income |
The backstory
Robert, an Australian expat living in the United States for the past four years, was looking to refinance his residential investment property and purchase a new investment property.
Working at one of the top multinational social media corporations in a mid-level managerial position earned him a decent income. And to top that off, he also received RSUs (Restricted Stock Units) of the company, every year; the company would disburse his RSU vested income quarterly, which contributed to making around 70% of his total income.
An impressive average annual income of $1.5 million gave him the confidence to apply for a loan to purchase a new investment property as well. He had his eyes glued to a property worth $3 million for which he required a loan of $2.1 million.
The stumbling block:
- Looking for a lender to refinance his existing loan and to purchase the new property became a tedious, and an almost impossible, task for Robert.
The reason:
- Almost no banks in Australia accepted RSUs as a secure income source when calculating borrowing power (serviceability), which was needed to be able to service the loan.
Restrictions with his RSU Income
Comparing Restricted Stock Units with stock options offered to an employee, RSUs are a better source of income; employees can cash out RSUs periodically but not stocks.
Sadly, RSUs being unusual in Australia, most lenders disregard this difference. Hence, they do not follow any standard guidelines to account for RSUs distinctively and reject applicants like Robert, whose RSU income makes up a big chunk of their annual income.
Some other restrictions with his RSU income were:
- Conservative valuation by lenders if they agree to consider it an income
- Doubts on the current price of his RSUs due to a global market downturn because of COVID 19 pandemic
- Possibility of wide inconsistencies in RSU income as it relies on the share market.
These restrictions created problems for Robert, who did not have any expertise in the field of mortgage or finance.
Finding the perfect lender (finally!)
Losing all hopes of being able to find a lender on his own, Robert started searching for professional help. It did not take him long to come across our website, and we at HLE connected him with one of our best mortgage brokers, Kenneth Cheah.
With Kenneth’s expertise in finance, mortgage, and communication, backed up by experience, he matched Robert with, one of the few, if not the only, banks in Australia factoring in RSU income while servicing the loan.
During the application process, our broker was able to:
- Present facts and data that showed a high market value of the employer company, regardless of the pandemic, which in turn would reflect on the future income from the RSUs of Robert
- Presented Schwab Statements and slips that proved Robert cashed out his RSUs quarterly, every year (most banks require clients to cash out RSUs, regularly)
- Convinced the lender that Robert will continue receiving RSU income every year, with a continued trend of increase in percentage share, each year
- Comply with the servicing calculation of the bank and prove the servicing was well within the established standards (factored in, base salary +bonus income +RSU vested/non-restricting income)
These facts and data were well-communicated to the lender that convinced them RSUs as an income for Robert were not an issue.
He qualified for both the loans he applied for in a short span and got formally approved even sooner!
A happy ending
The investment property Robert was looking to purchase got approved by the valuer instantly, so he got the $2,100,000 loan that he required to buy the new $3 million investment property.
Robert was also able to refinance his loan, with the same bank on a variable interest to his $542,500 loan as opposed to the previous fixed-rate loan he was paying to a different lender.
Getting out of a fixed loan at a time when interest rates continued to lower dramatically was a big win for him.
