Loan tips for investors: Ken Raiss, Chan & Naylor

While the RBA has announced that the cash rate remains steady, 85 lenders have increased their fixed-rate loans. How can prudent property investors get the best deal, making their investment more efficient? We speak to Ken Raiss, partner at Chan & Naylor accountants, for some insight.

Ask for a professional discount from your lender.

Many investors do not realise they can shave off “between 50 to 100 basis points” from the published rate by asking for a professional discount from their lender, Raiss told Property Observer.

“We’re just surprised at the number of new clients we get for finance. They haven’t asked for it and so they haven’t got it,” he said.

Understand the product you’ve locked yourself into. 

Often, bankers offer the product that’s easiest for them. Hence, it is important for consumers and investors to do their due diligence and find out what exactly their loan provides – including the flexibility of the loan.

Raiss also reminds investors that they can have a partially fixed and variable loan.

“You don’t have to have all or nothing,” he said.

Consider the exit cost to pull out of a home loan.

Another point Raiss raised was to properly consider the purpose of a property when purchasing it.

“People haven’t properly considered whether they are going to be living in the home for a long time as a principle place of residence. They live there for a short period then move that property into an investment loan. Your loan may not take into account short to medium-term changes in usage,” he said.

He added that it is possible to change a loan, but changing ownership of a loan will incur “significant costs or stamp duty”.

Hence, he emphasised the importance of structuring the loan correctly as the flexibility of the loan may be able to allow investors to repay it as a principle place of residence, or investment property.

 “Rent money is dead money” – that’s only true if you don’t do something else.

Raiss has noticed a trend where people do not purchased principle places of residences because of the costs involved.

“A lot of clients say they can at least get an investment property and rent – because you can be better off paying rent to somebody and buying an investment property than saddling yourself with a high mortgage that puts you in financial stress,” he said.

“People don’t understand the financial structure of having an investment property. It could cost you significantly less if you don’t live in it. Even if you rent, you could still be better off financially,” he added.

Cross-collaterising your loan can be “dangerous”.

Property Observer reported recently that Angelo Malizis from mortgage broker Resi agreed cross-collaterisation of loans is not ideal. Raiss echoed this point of view.

Repay your mortgage fortnightly instead of monthly.

Raiss recommends paying your mortgage fortnightly, not monthly, as it “dramatically reduces principle” – allowing investors to have equity quicker, therefore allowing them to reinvest in another investment property.

He also asks investors to look out for interest-only loans, even for their principle place of residence.

Take into account what happens when interest rates rise.

With interest rates at an all-time low, Raiss notes it is important to consider what happens when rates go up and make preparations when the economy improves.

“We all want a better economy, and with that comes a higher interest rate. Some people have got themselves into loans at these arbitrary interest rates without considering what happens later on,” he said.

Don’t be a lazy borrower.

If you find that your current loan is not working for you, look around for a better loan and switch.

“The banks have no loyalty to you as a customer,” Raiss reminds investors.

He adds that in the past, it was difficult to switch loans. With the current economy however, he finds that it is possible to “ring up and put a bit of pressure on your banks – for a lot of people that will deliver great benefits”.

Conversely, he warns against going to too many banks, which will impact your credit rating.

Talk to a mortgage broker.

Raiss feels that unless the loan is a straightforward one, there is no necessity to go to a bank. 

“A lot of people will go to a bank and the bank puts them in the easiest product. It’s not good for the future. You haven’t maximized the discount rate,” he said.

A mortgage broker may be able to help navigate the minefield that entails different lends and loan structures, and therefore help you choose the product that best meets your investment goals.