Why a Good Mortgage Broker Is Your Money Making Ally?
Have you considered skipping the mortgage broker and going straight to the bank? Before you go ahead, read this post first. You might be about to make a big mistake!
You should always use a mortgage broker when you’re a property investor.
Short-term Gain, Long-term Pain
A lot of people these days are into DIY. They think with a little bit of knowledge, they can just do it all themselves. And that may be the case with some things, but what is the cost?
With your mortgage, you could go directly to the bank, and you might even save a little bit of money in the short-term by doing so. But this is the wrong approach. This short-term gain might result in some long-term pain!
Focus on Making Money
If your approach to wealth creation involves trying to save money wherever possible, you need to do a mindset check. Because it’s not about saving money.
What you need to do is make money. Ask any wealthy person you like. Your attention needs to be focused on making money. And with property investing, the way you make money is by growing your portfolio, owning more properties, and making more money across your assets when the market moves.
A good mortgage broker will help ensure that you can buy more than just one or two properties. Allow me to explain further…
The Difference Between a Good and a Bad Mortgage Broker
It’s not actually enough to get any old mortgage broker. In fact, I’d say that 9/10 of them aren’t that great. Finding a good mortgage broker will make all of the difference as you grow your portfolio because they will put you with the right bank at the right time.
It won’t make a huge difference for your first few properties, but once you get beyond the first few, choosing the right bank might mean the difference between getting approved and rejected for a loan.
You see, even though you have the cashflow (in reality) to afford another property, on paper, the banks all assess you differently, resulting in you hitting a “servicing wall” sooner through some than others. Here are some of the factors they might differ on when assessing your borrowing capacity:
- Whether they include the rent of the new investment property
- The amount of loading they’ll add to your interest rate (1-2%)
- Whether they’ll calculate it based on interest only, or principal and interest
- The percentage of the rent included (75% or more)
- Whether you can include your tax return as income or not
The differences between these factors and all of the banks who have different rules around your borrowing capacity can be huge when it comes to getting approved for future loans. A good mortgage broker knows all of these rules and how they apply at different banks, and at what point in your strategy you should go with which bank.
You’ll hit the servicing wall at a different point with each bank, and even though you have equity and cashflow to service your new property, once the banks stop lending you money, you’re stuck and can’t get that extra property. A good mortgage broker will be able to navigate around these rules so that your portfolio can keep moving forward.
Arranging Your Mortgages
A good mortgage broker pulls together all of their knowledge on strategy and the rules for the different available banks to recommend the best possible bank to you. The average person does not have the knowledge or access to do this.
For example, if there was a bank that would lend you $2million, and a bank that would lend you $500,000 in your current situation, which bank should you go with? Most people will say the $2million bank, but this is wrong.
A good mortgage broker would recommend that you go with the $500,000 bank first, because you’ll hit your servicing wall with them quicker. After you’ve borrowed from this bank, the other bank will still assess your borrowing capacity as $1.5million, so you can keep borrowing from them and growing your portfolio.
A good broker will put you with the most restrictive banks first, keeping the most generous banks on hand for your third, fourth, fifth, sixth properties, and so on.
Just Don’t DIY
As you can see, doing it all yourself is not the wisest option. Things may not be as simple as they first look. Find yourself a good mortgage broker (if you need one, I can put you in touch with one), treat them well, and they will look after you so that your portfolio will grow long-term.
Doing it yourself is only going to result to your portfolio coming to a grinding halt. If you want to move forward past this point, you’ll still need to engage a broker… they’ll then need to refinance your whole portfolio anyway to get you out of trouble. It works out to be a lot of extra hassle – it’s must better to get things right from the start.
So, be smart. Think like the 1%. Surround yourself with people who are going to help you, including a good mortgage broker.
Happy property investing,
Daimien J Patterson