A retired IT executive nearing property settlement needed help financing an investment property due to limited income, leading him to purchase the land with cash as he couldn't secure a new investment loan.
Overcoming formidable hurdles, our journey through the loan application was riddled with noteworthy challenges:
- Limited Earnings: As a retired IT expert, our client relied on a modest part-time income to cover daily expenses. To add to that, the ongoing rental expense of his principal place of residence presented a hurdle as the associated living expenses outweighed his earnings. This imbalance in cash flow immediately caught our attention as it highlighted the impending financial strain he faced. We felt that with this profile we would be unable to convince any lender in Australia to make an offer of credit.
- Shortened Loan Term: Compounding the obstacles, stringent lending requirements for retirees mandated a maximum loan term aligned with the borrower's age of up to 90. At 68 years old during the loan application, our client's loan tenure was limited to 22 years instead of the customary 30 years. This posed a significant challenge, as a shorter term translated into higher monthly repayments, necessitating a higher level of net disposable income to meet the borrowing criteria.
In the face of these arduous challenges, we remained steadfast, forging a path forward to secure the financial success our client deserved. Here's how we tackled each issue head-on:
- Amplify the Income: With the aim of enhancing our client's borrowing capacity, we strategically advised our client to include his son and daughter-in-law as joint borrowers. Their inclusion introduced additional disposable income to the profile, complementing the father's part-time earnings. Furthermore, through our fact-find process, we discovered the father's lifelong monthly payout from his investment insurance. This auxiliary income source, though modest, proved instrumental in fortifying the loan application, tipping the scales in their favour.
- Extend loan term: Recognising that the additional younger couple held stable primary income, we negotiated with the lender to extend the loan tenure back to the standard 30 years. This pivotal adjustment alleviated the burden of high monthly repayments, easing the pressure on their net disposable income.
- Trimming monthly commitments: Through the submission process, we discovered that all three borrowers resided in the rental property together. The young couple also had a joint mortgage for their under-construction residence in Singapore. Anticipating the impending transition upon completion to the new residence, we approached the lender and advocated for the exclusion of the current rental expenses from their financial profile. We additionally advised the borrowers to restructure their monthly superannuation (CPF) contributions, which would offset a portion of their Singapore mortgage repayments. This strategic move streamlined their cash flow, in turn increasing their net disposable income.
Armed with these solutions, we charted a course to an optimal result. The borrowers successfully fulfilled the lending requirements and obtained a loan amount that exceeded their initial expectations by implementing all of the recommended strategies.
Ultimately, our invaluable support left them overwhelmed with appreciation. Not only did we expedite the financing process for their construction project, but we also provided them with the opportunity to recoup a portion of the equity they had initially invested in the land. As a result, the construction of their investment property is advancing seamlessly, marking a resounding success.
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