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Pros and cons to splitting lending across banks

At My Mortgage we’re all about providing great options for our clients, and using those options to get the best result. One of the ways we do this is by splitting your lending across two or even three banks, which can be beneficial for the right borrower.

We’d like to clear up a few pros and cons to splitting your loans across different banks, and identity some situations where this can work really well.

To split lending across several banks, firstly you need to have at least two properties, and each bank will calculate your maximum borrowing percentage against each of those properties.

To keep things easy here, let’s assume you have a house you live in worth $500K and a rental property worth $500K. Your maximum borrowing at the first bank (for your home), is 80%, or $400K. For the rental property, your maximum borrowing is 70%, or $350K.

Pros to splitting

  • You split your risk. If your rental properties are separate to your own home and something happens to your rental income and you are unable to pay back your loan, the bank who has security over your rental properties can’t access your personal home to sell and repay the debt you owe. It protects your own home and you with it.
  • You can take avantage of different bank policies or different products. One bank may offer an offset product that works better for your personal home and we can use that to help you pay off your loan faster, and another may take income from Air BnB which increases your borrowing power
  • You may have access to different interest rates as a new customer

Cons to splitting

  • Sometimes ownership and equity are such that if you want to purchase a new property and you don’t have a cash deposit, you may need security from one property to fund another. That will reduce your ability to split banks unless the first bank will top up your lending to fund the deposit for the second property
  • Rates can be more competitive when you have “mixed security”, being both owner occupied and rental property
  • Certain tax advantages may not be available to you if you are funding a new property with funds borrowed against anotherAs with all our clients, everyone is different, and what works well for you now may change in future if banks change their policies or you have a change in circumstance.

It’s important to speak to us about the best way to fund your new purchase or re-structure. We do this all the time and can recommend the best option for you heading forward. 

As always, we look forward to hearing from you.

Adam, Claire and the My Mortgage Team