Case study: What to do when the bank says ‘No’…

The situation…

Bank declines couple’s request to continue paying interest-only on a portion of their lending, as they had reached the maximum interest-only period.

With the couple facing a significant rise in mortgage repayments after interest rate hikes over the previous 5-years, Threefold helps the couple put their best foot forward and refinance with an alternative provider. 

The client…

A couple in their 50’s with lending across both their family home and their rental property, equating to approximately $500,000. The client had been making principal and interest payments on their family home, and interest-only payments on their rental property for the past 15-years. Their mortgages on their rental property and family home were fixed at a rate of 4%, with total loan repayments across both loans equaling approximately $2,000 per month. There had never been any issues with the client falling into arrears on either their primary home or rental property mortgage payments.

The problem…

Both the clients’ loans were coming up for renewal. However, when the couple approached their bank about refixing their loans, the bank declined their request to continue to make interest only payments on their rental property. Instead, the bank insisted that the couple moved to paying both principal and interest, along with moving to a shortened term of 10 years.

With interest rates having risen to just under 7%, repayments on the couple’s two mortgages would have equated to $5,842 per month, or an increase of more than $3.8k per month over what they were currently been paying. This level of increase would have placed couple under significant financial pressure.

While the couple considered whether they should sell their rental property, their preference was to keep it until the market recovers. The couple also wanted to keep the cashflow coming in from the rental to help with their retirement costs.

The outcome…

On the back of the new applications, we were able secure an offer of terms from an alternative mainstream lender for an interest only loan.

The result was that the couple was able to secure lending on a 30-year term, the ability to make with interest-only payments for five-years, and at a one-year interest rate of 6.85%. This equated to interest only repayments of $3,277 per month.

While this was a significant increase on their current payments, it was almost half the level of repayments that the couple would have faced if they had they been forced to accept the terms offered by their previous lender.

If you find yourself in a similar situation…
  • Talk to your financial adviser – we are here to help and will look holistically at your financial circumstances to help you put your best foot forward when completing a loan application.
  • Don’t just accept ‘no’ for an answer – Sometimes a bank will decline your initial application, but banks do have some discretion when it comes to lending. A good adviser will help you put your best foot forward during the application process and will help state a case as to why your application should be accepted.
  • Look for tax efficiencies – if you have rental properties or a business, there are often tax savings we can identify during the discovery phase of the loan restructuring process. These can be shared with your accountant, often resulting in significant savings.
  • Prepare and plan early – if your fixed term rate is ending, or if you are looking to apply for new lending, start preparing early. Make sure your finances are in order and speak to your mortgage adviser at least three-to-four months in advance of your rate expiring.

The content of this article should not be taken as financial advice, or a recommendation of any financial product. Threefold is not liable or responsible for any information, omissions, or errors present. We recommend seeking advice from a qualified financial adviser before taking any action.