Is a bank bill loan the right option for me?

Any general questions you might have in regards to loans and finance.
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totoro
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Joined: Wed Jun 17, 2009 4:58 pm

Is a bank bill loan the right option for me?

Post by totoro »

Hello there!

I have been planning on investing in a commercial property worth $4 million. When I approached my bank with the proposition, they said that I would need to get a business loan. But this kind of loan apparently has a much higher interest rate than standard home loans.

One of my friend was saying that I may pay much less in interest if I am able to get a bank bill loan. I do not know about this kind of loan. Could someone give me more information on this kind of loan? How does it all work?

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Otto Dargan
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Re: Is a bank bill loan the right option for me?

Post by Otto Dargan »

Hi and welcome to the forums totoro,

If you want to make a big investment in a commercial property then a bank bill loan may be the right option for you. It may enable you to get a lower interest rate due to the wholesale pricing that this kind of loan involves.

A bank bill facility is linked to the lender’s cost of funds. Lenders borrow money at the Bank Bill Swap Bid Rate (BBSY). In a bank bill loan, the lenders add a certain margin above the BBSY depending on the overall risk of your loan. The interest rate is rolled over every 30, 60, 90, or 180 days and reset as per the cost of funds at that time.

This type of loan is suitable for those making large property investments. If you are borrowing over $5 million then a bank bill loan may be the best option for you. However, you may be able to get a bank bill loan for amount as little as $2 million.

When you are getting a standard commercial loan then the banks are taking the risk of fluctuations in the BBSY. With a bank bill loan, you are taking over this risk from the lender. If the cost of funds rise then it will affect you, not the lender. The lenders add the margin to the BBSY for giving you access to the funding, managing the loan, and taking the risk of default.

Bank bill loans do not offer extra features such as an offset account. This type of loan is a no-frills loan.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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totoro
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Re: Is a bank bill loan the right option for me?

Post by totoro »

Hi Otto, thank you for the information. Can I get an idea on the margin that the banks will add to the bank bill swap bid rate?

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Otto Dargan
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Re: Is a bank bill loan the right option for me?

Post by Otto Dargan »

Hi totoro,

There is no set margin that the lenders will add to the BBSY. The margin is determined based on the overall risk that a particular loan has. The margin is higher if the risk of a loan application is higher. It depends primarily on:
  • The size of the loan: A higher loan amount will have a lower margin.
  • Loan to Value Ratio (LVR): A higher LVR has a higher risk and will have a higher margin.
  • The type of security: A standard security in a prime location will usually have a lower margin.
  • Your financial position: If you have a good financial situation such as sufficient equity and a high borrowing power then you may be offered a lower margin.
There may be vast differences on the margin that different lenders add because they assess risk associated with loans differently. It may be better if you consult an experienced mortgage broker in order to find a lender that offers the lowest interest rate.

If you would like to know more about these then you can check out our website. We can also be reached on 1300 889 743 or you can fill in our free assessment form to see if you qualify for a loan or not.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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totoro
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Joined: Wed Jun 17, 2009 4:58 pm

Re: Is a bank bill loan the right option for me?

Post by totoro »

Thank you for taking the time to answer my queries. I will give you a call soon to discuss the different options available to me.

deedee
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Joined: Fri Jul 26, 2013 7:06 pm

Re: Is a bank bill loan the right option for me?

Post by deedee »

Hi everyone,

I am also thinking of investing in a commercial property, and it seems that a bank bill loan will be a suitable option for me. However, I am worried about large fluctuations in the interest rate. Is there any way that I can minimise my risk?

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Otto Dargan
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Re: Is a bank bill loan the right option for me?

Post by Otto Dargan »

Hi deedee,

You may be able to choose a fixed, floating, or a capped interest rate in order to manage the risks of your bank bill loan. If you think that the fluctuation in the interest rates will have a significant effect on you then you may be able to lock in a fixed rate. It will give you the peace of mind that you will not be affected adversely by the macroeconomic conditions.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

deedee
Posts: 44
Joined: Fri Jul 26, 2013 7:06 pm

Re: Is a bank bill loan the right option for me?

Post by deedee »

Thank you for the information. I will consult my bank about whether I can get a fixed rate on a bank bill loan.

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