As we slide into the new year, resolutions in hand, and shake the sand out of our sneakers, we turn our attention back to the formalities of life. Things like work, family, new gym memberships and mortgages….

I may not be able to help with all of the above, but the mortgages, absolutely! I wanted to give some tips and tricks to help you navigate what promises to be an undulating year in the property market. More specifically, I‘ll focus on tips when it comes to reviewing and structuring your investment portfolio to help ensure you can hold and/or continue to grow. Each time you go to buy or sell a property, refix a mortgage, renew interest only or any other of the myriad of lending changes that happen each year, it’s an ideal opportunity to look at the jigsaw that is everyone’s individual financial situation.

DON’T HAVE A CRYSTAL BALL?

Don’t worry, neither do we!

There are some interesting statistics regarding the number of home loans still to roll off their fixed rates, with many investors in 2021 opting for a 2 year fix and finding it now coming up for renewal double or even triple the rate. I saw a stat the other day which said that 57% of ANZ’s mortgage customers are still on rates between 2 and 4%. Those borrowers, possibly like you, need a strategy around how to manage the change when those loans move into the 6’s.

Whilst many borrowers over the last 3-5 years have opted to put all their lending on one, shorter term rate, most of my investors are now electing to split of their home loans. Often, these investors are unaware before speaking to me that they can take a large loan and split it into different refix amounts. For example, you could take a $400k loan and refix $200k for 1 year and $200k for 18 months to either soften blow if rates are still not quite at their peak, but also take advantage of rates if they are coming down in a years time. A rate splitting strategy is a little like a dollar each way at the race track - a smaller win but a more likely one.

SHOP THE SALES

Speaking of interest rates - if you’re finding yours are up, it can be a good time to review the options available to you. A good adviser can help run the numbers to get a really clear idea if it’s worth looking into another bank or not. Things like having some lending still locked in, cash contribution periods and legal fees all need to come into the equation when you’re thinking about moving to another bank. On the other side of the equation, there’s the very healthy cash contributions on offer, with many large banks publicly offering a 1% cash back for home loans up until the end of March 2023. If the numbers stack up, and moving banks is something you are keen to explore, this cash contribution can be drip fed back into repaying the home loans over the next year or so whilst they’re starting with a 6. This will lessen the pinch on your cash flow.

‘Many investors in 2021 opted for a two-year fix and it’s coming up for renewal double or even triple the rate’

IT’S SPLIT BANKING TIME

Let’s be honest, it’s always split banking time.

Say that a few years back, you went to the bank that you’ve had a mortgage with for yonks, and got your investment lending approved with them too. Now might be a good time to do what they won’t have been able to advise - take the lending away from them and go to someone else. If you’re thinking of making changes to your portfolio in the next few years, you might be watching falling house prices with a nervous eye wondering how that, along with higher test rates is going to impact the funds you get to keep when you look to downsize/renovate/sell/buy. The good news is, you can take this time while you’re reviewing your interest rates to look at your structure and mitigating risk with my true love: split banking. Even if your investment property is over 60% loan value ratio, there are times where a Reserve Bank exemption can be applied that allows for a dollar for dollar refinance of that lending.

EXTENDING ON YOUR LENDING TERM

In my last article, I spoke about the importance of reviewing your loan terms and ensuring they are best supporting what you’re looking to do. If your interest only is up for review and you get it refreshed for a further 5 years, can you afford to repay the lending over a 20 year term? That’s what the banks will need to be assessing when it comes to approving it again, unless you’re able to get them to extend the background loan term back out to 30 years. If your bank is unable to do that at the same time they renew, it may be time to look to a new bank to restart the clock. The background terms are incredibly important to know as they have a big impact on future ability to lend, and your cash flow should your interest only roll off and you have to start paying principal and interest over the loan term remaining. There’s a big variance in the banks and the interest only terms they can offer you, due to them all having different policies to fit what they consider to be responsible lending.

So there’s a few review tips to think about for your portfolio jigsaw. I wish for you a successful 2023 of investing and hope it’s full of competitive rates (well… relatively speaking), excellent cash contributions, safe split banking and the right loan terms for your needs.