Proven Solutions to Overcome Finance Approval Hurdles | Financial Freedom Podcast Ep 5

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Ever felt like you're navigating a maze when trying to get your finances approved?

Do you know the common pitfalls that could be standing between you and your financial freedom?

Join us in this riveting episode of the Financial Freedom Series Podcast with Andrew Bean and Victor Lagos, as we unravel the complexities of the finance approval process. Victor, a seasoned property investment and financial management advisor, shares invaluable insights and expert tips to guide you through the journey of securing finance approval.

In this episode, we dive deep into the intricacies of loan applications, the importance of understanding your borrowing capacity, and the common traps that many fall into during the process. Victor sheds light on the critical factors that lenders consider and provides practical advice on how to present your financial situation in the best possible light.

Don't miss out on these expert strategies and real-world examples that could be the key to unlocking your financial potential. Tune in now to transform your approach to finance approval and take a giant leap towards financial freedom!

Grab your FREE Copy of the 5 Benefits of Investing in Commercial Property Link: https://lnkd.in/gNUd3Pjq

Victor Lagos - Lagos Financial

Ph: 0450 313 606

Email: [e-mail]

Website: www.lagosfinancial.com.au

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SHOW CREATED BY THE COMMERCIAL PROPERTY SHOW NETWORK

HOSTED BY: Andrew Bean

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Show notes tags: 

Finance Approval Process, Loan Application Tips, Property Investment Advice, Financial Management Strategies, Borrowing Capacity Enhancement, Overcoming Loan Rejection, Interest Rate Negotiation, Mortgage Stress Test, Streamline Refinancing Options, Commercial Property Financing, Victor Lagos Expertise, Financial Freedom Series, Australian Property Market, Loan Approval Challenges, Real Estate Investment

What is Debt to Financial Freedom?

Welcome to the Debt Financial Freedom Podcast. Everyone loves the benefits of money, but so many of us avoid the hard truths about saving and investing. We wrongly assume we don’t have enough time, capital or knowledge to be able to get to the point of having passive income streams, savings, or investments.The things we really need to know about money aren’t taught in schools. Spending less than you earn, maximising your income, budgeting, taxes, mortgages, investments and passive income - if you didn’t learn these things from your family, then you’re probably like most people who rely on credit cards, buy now, pay later and overdrafts. And then when you want to invest or buy property you will be wondering why you can’t get approval.But there is no judgment from me here - I was in exactly the same situation! Huge debt, poor financial habits and no assets to my name. Step by step I turned my situation around and now, as a certified mortgage broker for 16 years with several investment properties in my name, I’m here to help you go from debt to financial freedom. Because if I can do it, you can too.In this podcast, I will share tips, insights and strategies from my own journey and experience, as well as my clients and guest experts, who share my values and mission to help others create financial freedom. My goal in this podcast is to share raw, honest, transparent, and helpful stories that you can relate to, and that will inspire you to take control of your finances. The only ‘good’ debt is debt that brings you closer to financial freedom and I will show you exactly how to achieve this. Everything shared by me and my guests in this podcast is general in nature, and for education purposes only. None of your personal objectives, financial situation, or needs have been taken into consideration. I highly recommend you seek personal, financial, legal, taxation, and credit advice before you take action on what you heard on this podcast.

Andrew Bean: All right, we are
back with the financial freedom

series. My name is Andrew Bean
and I'm here with top mortgage

broker and financial expert
Victor Lagos. From Lagos

Financial. How are you mate?

Victor Lagos: I'm good, Andrew,
how are you, mate?

Andrew Bean: I'm fantastic,
buddy, how's everything going in

the world of finance?

Victor Lagos: I must say, it's
definitely been much better.

Since we haven't had rate rise
the last few months. Man, it was

it was tough trying to keep on
top of all those change of rates

and policies and lenders. But
now people I mean, it's also

spring. So people are out there
buying property. People want to

get property, and it's just a
matter of, you know, can I

borrow the money? So at the
moment that cancer?

Andrew Bean: Yeah, that's it. I
don't think we're, you know, out

of the woods yet with interest
rate rises, or, you know, even

interest rate drops. But, yeah,
definitely more listings. Now.

It's spring. So it's really good
to see.

Victor Lagos: Definitely, and
I'm just even for commercial

property, I'm finding people
that I was talking to months

ago, are actually finding the
properties, the right prices, so

gotta love them to guard them.

It's good.

Andrew Bean: Yeah, well, that's
right. I mean, like the interest

rates, where they are now like a
six, six and a half, even like a

7% interest rate on a commercial
property is actually on average,

like where interest rates would
be over like the, you know, a

really long period of time.

That's the like, average around
where it should be. And it's a

good place for commercial
property B, because you get

good, like, really good
negotiation tactics with the the

agent. And you can also work at
around like five different

interest rates later down the
line, like just because you have

a high interest rate right now.

Doesn't mean that's the interest
rate you have to have for the

whole life of that property. You
know, you can refinance, you can

do lots of things.

Victor Lagos: Yeah, yeah,
definitely. And you're looking

at cash flow from today. But
yeah, like you said, it's not

going to be that forever. So
when rates drop, cash flow will

improve, when rents go up, cash
flow improved. So the numbers

work today, then, hopefully,
they'll actually get stronger

over time.

Andrew Bean: Yeah, that's right.

And I think people are
baselining, like interest rates

today on where they went. So
like, how low they went, is that

was like a record low. That was
very unusual. It, you know, we

may never get back there, you
know, in our careers. So like,

that was actually the unusual
part, how low interest rates

when, and this is actually more
of a normal market, where you

know, you can get good deals,
you can, you know, a 6% return,

or interest on property is
actually like, not bad. Like,

it's you shouldn't be afraid of
it right now. Yep.

Victor Lagos: Now, great movie
get used to it, you know, people

will adapt to this time. Yeah.

Andrew Bean: Alright, man. So
today, I wanted to have a chat

about getting finance approved,
and where it could not go wrong

in the process. So in terms of
like, the most common reasons

loan applications get rejected,
how and how, like applicants can

mitigate these risks of like,
why applicants get rejected?

Victor Lagos: Yeah, look, it
depends, I guess, on the broker

and their experience with how
many deals or how many

applications have actually
they've worked on over their

career, and how much due
diligence they put in to their

own assessments before they
apply on behalf of the customer.

So a lot of the time, if the
data is all correct, sir,

meaning, you know, all your
address history is correct your

employment history, your
expenses, you know, close to

what the banks expect them to
be, you supply all the documents

that they asked for, then
really, it shouldn't get the

client, it's just a matter of
going to the right lender for

your situation. But what I've
seen probably from my own

experience, where things don't
go the way I plan, it's due to

the complexity of the way they
do their tax returns. And that's

if someone's self employed,
because an accountant will write

off as much as they can. And
they will, you know, obviously

show certain amount of income.

And over the last few years,
there has been, you know,

government subsidies and grants
and things like that to help

people. And what I've found,
from my own experience, is that

some banks will deduct those one
off income, right, and revenues

and deduct that from the net
profit. So it's not a matter of

getting the client but more just
not getting approved for the

amount you apply for, which is
basically like getting declined,

right. So if you're buying if
you need 600 grand, but the bank

only approves 400 Well, what's
the point of approving 400?

Because you needed 600 for that
particular transaction, right?

Andrew Bean: Yeah, well, it
makes sense. Yeah, it does make

sense And so like, say like,
during COVID, when, you know,

businesses were getting a bit of
help from the government, and

they, their revenues were down,
but like, and so they weren't

able to work, they weren't able
to get like the higher revenues

that they would usually get. So
the lending is like, and then

the bank doesn't even, like
capture what they the government

was giving out to businesses
anyway. So that, yeah, that's a

bit of a like, it's a bit of a
slap in the face, really,

because like, we've all we were
operating properly at a high

like 100% capacity, we would
have earned that money anyway.

And we wouldn't be even talking
right now. But because of the

situation, you know, wow. It's
almost like shading on rent.

Victor Lagos: Yeah, and that's,
that's why you need to navigate

it properly, because some banks
are actually understanding of

that. So they'll look at, say,
the previous year and say, Okay,

well, that previous year, when
you had no, no grants, there was

no pandemic, you earned XML, and
the hereafter, you obviously

weren't able to work, you know,
you had to shut shop for a

period of time. So as long as it
sort of shows that pattern of

recovery in the most recent
financial year, then they'll

kind of accept it, but others
are like not blanket rule, no,

can't look at it, it was one
off, not going to continue. And

that brings down the average. So
that's, that's a challenge. So

obviously, somebody has to
navigate. But also just, you

know, when someone's got
multiple entities, sometimes it

can be quite complex to track
the money to actually, it's easy

to sometimes double up because
money gets paid from one company

to another to another trust. And
sometimes you think that, you

know, you've got just 60 grand,
here's another 60 grand there,

but really, it was the same 60
grand, right. So you have to be

spending time checking it
properly, to make sure that you

know, show more income than you
actually is. And then, but in

terms of the clients, so what
I've found, I guess, maybe more

inexperienced workers or even
inexperienced customers that

have got credit issues, so they
might end up going applying for

a payday loan. So someone that's
going to fund, give them capital

straightaway, and then they'll
pay it back with the next

paycheck. That's, that's a red
flag. So if you've got them on

your credit file, that could be
a decline, even though they

would just for a particular
window of time that you needed

it, that could be the client, so
somebody like that could affect

you, a default that you've had
in your credit file from a few

years ago, that, you know, that
was also a period of time where

you weren't able to, you know,
make your payments, and still on

the file. So that could also be
declined. But again, you can

find this stuff out before you
even, you know, hit go. And, you

know, cover that off with your
comments, you know, get an okay,

from the bank, I tried to do
that they called you know, you

get a credit scenario, you send
it to the bank and say, Look,

this is the situation, this is
the strength, can we actually

do? Can you approve it based on
this situation? And then they'll

say, Yes, subject to full
assessment. And if we have that,

then we should be good to apply
for the loan.

Andrew Bean: So mate, how do
different types of loans such as

like personal business, or
mortgages differ with the

approval process,

Victor Lagos: probably more than
anything else, it's the

timeframe it takes to get
approved. So the more I guess a

larger amount you apply for, the
longer it can take, because

there's more moving parts, it's
more risk to the bank. And also,

there's a larger asset. So if
you're purchasing a property,

this, obviously there's going to
be a mortgage required, there

might already be a mortgage,
because somebody owns the

property. So they have to value
the property that can take time.

But if it was a car, for
example, you know, cars, they're

quite easy to determine if
they're real or not, you just

still PPSR search, you know,
security property search to see

if it exists, the VIN search,
and then the money can really,

you know, exchange hands within
a couple of days. But property

as well, there's contracts, and
those contracts have settlement

periods, which can take six
weeks, sometimes even longer.

So, but the approval itself,
depending how good you are with

the data, you presented the
bank, you can get approvals in a

few days with some banks. And
some lenders actually can take

longer, it can take a week or
two. And it all depends on how

much volume they have, what
they, you know, their turnaround

times to process that. But yeah,
it all just comes down to I

think complexity and mountain
borrowing, the type of asset

they're buying. And also even
the type of customer if you're

self employed, it's going to
take a bank longer to come up

with a credit decision versus
someone who's PAYG

Andrew Bean: Yeah, it blows my
mind that like how easy it is to

get car finance, like Obviously,
like, for the bank, that's an

asset to them, because they're
writing a loan, the loan is an

asset to them. But to the actual
borrower, the car is a

liability, like, unless you're
using it to make money through

Uber driving, or like doing
deliveries and stuff like that

for like Amazon, like, it's a
clear liability. So like, if the

bank was like going to lend
money to you in the best like,

in like, basically, they trying
to lend to you for the best type

of asset for your particular
finances, they would, it would

be flipped around, it would be
like, Okay, let's buy your

house, because that's going to
make you a lot more money in the

future. Because it's going to
have time in the market, it's

going to appreciate over time,
it's going to be a real great

asset to you, obviously, like
the values are way different.

But like, in terms of like the
other songs, like let's get you

a car, let's make sure you have
huge rip, like big repayments

for that car, and it's a
liability to depreciating asset,

and it will not grow your wealth
at all. Like it's just really

funny how like the difference in
a liability to an actual asset,

which the banks are actually
trying to happy to loan like,

below process quicker to you.

Victor Lagos: Yeah, I can see
why you can look at it from that

angle, right? When you bet,
like, the more you benefit, the

longer it can take. And the
harder it is. Right? Yeah, but

But for them, the lender they
benefit. And they'll turn it

over quickly, because that just
means income straight to their

bank, whatnot. Yeah, I can see
that angle. But look, I don't

think that's a deliberate thing.

I think it's just a matter of a
lot more moving parts required.

For property, it's more complex,
there's mortgages, other

interest on there, there's, you
know, different banks already

have an existing mortgage on
there. versus, you know, a car

that's like, you know, buying
for a dealership, it's clear

title, you just register, you
know, an interest when you buy

it, and it's nice and quick. And
also the availability of

capital. That's another thing.

The reason why Car Loans get
approved so quickly, and a lot

of the time it's less
documentation. It's because

we're not talking about a lot of
money, right? 3040 50 grand, it

might be a lot to a lot of
people. But to a lender, it's

not like they lend out billions
of dollars. Whereas when you're

lending millions of dollars for
for a property, yeah, what's a

larger sum, there's more rules
around making sure that the,

they're going to get their money
back with interest. Because they

don't lend out their own money,
or they borrow it. So if

remember the defaults everybody
loses. So

Andrew Bean: yeah, of course. So
we'd like car loans, obviously,

with property. There's also a
location aspect as well, like

some banks will only loan to
certain locations, with a car

loan, that probably doesn't
apply does it at all, because a

car moves.

Victor Lagos: It doesn't apply
in terms of location, but it

does apply in terms of the asset
itself. So what I mean by that

is, some most lenders for car
finance will have a age

restriction. So you can't go and
finance like a 1980s car or a

60s car, because it's, it's too
old for them. The resale is

difficult, right? So they might
have at the end of the loan

term, the car must maximum be 10
years old. Don't Really Care

About kilometers, I think
that'll be very hard to sort of

track. But they do look at if
it's private sale, if it's

dealership, so how old the car
is. And whether the car is going

to be for business use or
personal use, all of that will

come into into the equation. And
someone says a blanket rule. If

the car is too old, we won't
lend against it. And others will

be flexible. So yeah, it's not
the same as property because I

did experience that recently
with a with a client wanting to

buy in, in South Australia. And
it's sort of regional town. And

lenders consider it a category
four location. So what that

means is that it's yeah, it's
obviously it's not Metro. And if

you think cat one, category one,
category two, three, so four is

like, you know, the bottom of
the pile. There's not much

population at all. There's not
much industry there. So really

reselling the property would be
difficult if it defaulted.

That's and if it's reliant on on
tenants to pay them the rent in

order to cover the mortgage,
then relating it would be

difficult as well. So that's why
they look at location.

Andrew Bean: Yeah, of course. So
mate, how long does it usually

take like typically from loan
approval to actually seeing the

funds in your bank account.

Victor Lagos: Honestly, it's can
be a very quick process. So the

main thing you have to do is
sign loan documents, once it's

approved, if it's a property,
you know, and you and you would

have seen this, some of the
listeners, if you've, if you've

bought in a company or a trust,
there's a lot more documents

required, you have to get legal
advice, you have to get

financial advice, as guarantor
documents is witnessing

documents, they need wet
signatures, you know, you need

to post it back needs to be
checked, all that process can

take a little while. But if
you're good at paperwork, you

can do it in a day, send it back
by express bus, it can be

checked, and then good to go,
then it just comes down to

aligning the date with the
seller to sell is ready to

receive the funds. And
obviously, they've probably got

a mortgage as well, they need to
pay up to that their lender

needs to be ready to receive the
funds that can take the whole

thing, from from approval to
settlement can be days. And it

can also be weeks, depending on
when everyone else is ready.

With a car or a personal loan,
you know, it can be same day.

It's all electronic. Now, a lot
of the time you signed

documents, if it's you know,
DocuSign and they transfer the

money, you experienced that with
your car, like the money was

paid the same day it was
approved pretty much a couple of

days after.

Andrew Bean: Okay, yeah, which
kind of like property finance

was as quick as car finance
because I was shocked how how

quick and easy car finance was.

I mean, like, it's no wonder
that, you know, there's a cost

of living crisis. Everyone's
driving a brand, like beautiful

new car, like I've, I have never
really had a really nice car,

and I still have a you know,
just average, you know, Hyundai

Santa Fe, it's like a 2017
model, there's nothing feel

flashy, it's just gets the job
done. It's just nice, and you

know, has a bit more room. But
previously, we were driving like

older cars. But like, everyone
now has a really nice new car.

So like, it's like a good, I'd
say about a five to $600 payment

per month, like just on a car
loan, you know, so it's no

wonder that like, people have so
much debt now an extra cash like

cash they need every single
month, let alone to be able to

buy a property and put a
mortgage on it. You know, it's

just crazy.

Victor Lagos: Yeah, I, I'm
working on one at the moment

where these clients came to me
and they want to buy another

investment property, they've got
four at the moment, and they're

looking at buying the fifth. And
they're pretty squeezed for

borrowing capacity. But I
noticed that they've got two car

loans under their names,
totaling about 40 grand

approximately, maybe a bit more.

And their repayments are like
that exactly what he said $600

or whatever it is per month. But
because we got equity on their

properties, we can consolidate
them. So that's what we're

doing, we're actually just
paying out the car loans with 40

grand of equity. And then we're
using the rest of the equity to

come up with a deposit to buy
another property. So it's like,

you know, people don't realize
how much of an impact that has

on them at the time. You're they
want, they want the car, they

want the convenience. They want,
you know, to look good when

they're driving on the road. But
then when they want to grow the

portfolio, or set themselves up
for the future, it's it can be

hindering them. So hopefully,
they're got enough equity in one

of their properties that they
can consolidate at some point.

Otherwise, you're stuck with a
car loan for you know, five to

seven years. But if you if your
repayments are low, you're not

borrowing that much, or you come
up with a big deposit, you know,

a couple 100 bucks a month,
whatever it is 300 400 It's not

going to have a massive impact
on your bar.

Andrew Bean: Yeah, because the
reason they would do that, and I

can basically break it break it
down, is because the the equity

that they've drawn out, is at
like a 6% interest rate. Let's

say that's probably what it is
around that Victor, and then the

car loan, is it like 10 or 15%
interest. So it makes sense to

use the cheaper money to pay
that car loan down. So you're

paying less interest, even
though you're still like

borrowing money to pay the car
down, but it's like half of the

interest. So obviously, that
would be better.

Victor Lagos: Yeah, also the
term that you have to repay it.

So like when you take a car loan
out, as I said earlier, the

maximum you can get it say five
to seven years. And that's

because the asset is
depreciating. It's not going to

be worth much. So lenders don't
want to hold the debt for too

long because it's just not going
to be how much of a resale value

Whereas property, it's going to
probably go up in value. So

that's why they'll give you 30
years, because their risk is

actually reducing, alright, from
the bank's perspective, the

debts coming down and the value
is going up. So for them, the

risk is less and less, and
you've got a repayment history.

So that's why they'll stretch
you out for 30 years, no

problem. So when you take out
your equity, and you consolidate

your car finance, you can
stretch it out over 30 years

now. Which brings down your
minimum repayment, you can still

pay it off in five to seven
years, right? You have the

freedom to do that on a variable
loan, but the banks minimum is

over 30. So therefore, your
serviceability is

Andrew Bean: Yeah. And what you
can do is you take out the

equity, you pay down the car
loans, and then with the rest of

equity, the big chunk of equity,
then you buy a cash flowing

piece of real estate, then the
cash flow from that real estate

pays the cars off for you.

That's how you do it. You get
the best of both worlds. That's

the way Exactly

Victor Lagos: yeah, that's

Andrew Bean: awesome. Yes, sir.

Can you explain some of the
common terms and stuff that you

hear thrown around by banks and
mortgage brokers? And let us

know like, if there's any
difference? So is a pre

qualified is pre approval, and
there's approval in principle?

Are they all the same thing? Or
do they mean something

completely different?

Victor Lagos: Yeah, terminology,
yeah, like,it's funny, you say

that, because I, you know, this,
I used to work for a bank, and

they had their own acronyms what
things mean, and, and then

became a broker. And then of
course, some of those I still

carry, right. And brokers use
some too. And because we

communicate with banks, we try
to use some of them. Example is

AIP. Alright, so AIP stands for
approval in principle, all

right. And then it also means
pre approval, same thing,

synonymous. The two words mean
the same thing. But I try when

I, when I call my application,
when I title them, when the

customer sees the name of it, I
call it pre approval. And once I

don't see it anymore, I call it
out IP, because I don't want

them to be what? I'm going to
explain it right. So but yeah,

essentially means the same
thing. It's, it's approved, in

principle, because it's not
fully approved, or nothing. I'm

conditionally approved versus
formally approved. Those also

mean the same thing, right. And
it's, funnily, it's funny,

because you can have an
unconditional contract of sale

on a purchase, and an
unconditional loan approval, but

then you can have settlement
conditions. So technically, it's

not unconditional, right? It's
still settling condition. And so

the difference is, when it's a
pre approval, there's no

property, right? AIP approval,
in principle has no property. So

they've, they've approved your,
your credit history, they've

approved your serviceability,
they've approved a certain loan

amount, based on your
circumstances, subject to a

property, or in a car in a plug
for people for a car subject to

a particular car. So then you
need to get the asset and say,

here's the actual asset that I'm
buying, can you now give me an

unconditional approval or
formula. And then assuming that

stacks up, then they'll give you
the last the final approval, or

the formal final, unconditional.

And what's the other one, you
said pre qualified. So pre

qualified look, honestly, that
doesn't really get used that

much in in mortgages, definitely
gets used a lot in the personal

loan space and cafe finance, get
pre qualified. And those are

like before a pre approval. So
before you even apply for the

loan, you can pre qualify. And
that's by doing like a credit

check, or a soft credit check.

So they basically look at what
your credit score is. Sometimes

they'll also do a bank statement
integration. So a lot of these

fintechs and smaller lenders,
they'll they'll actually have an

algorithm program that will
actually scan your bank

statements and automatically
categorize them, and it will

flag anything that's negative
like late payments, you know,

overdrawn fees, overdrawn
account, you know, payday

lenders, whatever it is, the
things that can be negative, and

also check the salaries
consistent. So it's not dropping

and whatnot. So that's where you
can kind of get a pre qualified

loan because it will check that
based on a computer algorithm

does no human checking it so
person checking, and then once

you're ready to actually apply,
usually it's easier if you've

already been pre qualified,
because then it's just verifying

Okay, the bank says, was the
program telling me yes, okay, it

matches the same, it looks good,
tick, tick, tick, move on

approved. So it makes it easier.

But if there's no algorithm,
checking all that stuff pre

qualify, then you'd literally
need a human to check it, to go

through the statements line by
line to check the pay slips, to

times takes more time. And, you
know, obviously, error, big

data, if you're looking at 12
months worth of bank statements,

person checking, it could be
tired, right, they might miss

something. They might be in a
bad mood, whatever, from the

previous one. So they might have
some, some some bias and like, I

don't like this, so I'm gonna
decline it right. So they're not

looking at objectively. So it's
a fine balance for a lender

because they want to lend money
to make money. But they don't

want to take on too much risk to
lend money to everyone. So it's

like the saying yes, whilst
trying not to say yes to

everyone saying no, well, I'm
not trying to say no to

everyone.

Andrew Bean: They can do that.

with humans. Like, we do have
unconscious bias, as well. Like,

if you've like, out about you're
in a bad mood, or, you know,

things do happen during your
day. And you see, someone's

like, he's always going to be
fucking McDonald's. What's he

going to be Donald's again, for?

Like, he's like, three times
that day? Blind, you know, so

yeah, yeah. So I just went on
topic. preapprovals, can you

just explain, like in
residential property, why you

can get a pre approval. But with
commercial property, it's not

really the same thing. You don't
get a pre approval for a

commercial property?

Victor Lagos: Yeah, okay. So the
main reason for residential that

you can get a pre approval is
because there's certain simple

rules that they can put in place
to accept the property or

security. It's not too
complicated. It's either an

owner occupier, or an
investment. It's either in a

desired location, or it's not.

Of course, if it doesn't fit the
mold, and it's different type,

whether it's, you know, you
know, primary production, you

know, rural, you know, it's got
an element of commercial into

it, then it's usually a blanket
rule, decline, doesn't don't

accept it, it's not a type of
security, or it's too large,

whatever. So a lot of it comes
down to the actual individuals

borrowing the money to, because
houses, if they miss properties,

houses, units, whatever, as long
as they fit those particular

parameters, then it's going to
be approved on the property,

they don't need to kind of dig
too deep per property to figure

out whether they'll lend the
money, the bigger credit

decision comes down to the
individuals applying to the loan

or the guarantors. So their
credit history, like we talked

about employment history, the
consistency of their income, all

that sort of stuff. That's,
that's how they decide. So

that's why they can give a pre
approval because the majority of

the decision lies there. But
when you buy commercial, it's

less reliant on the individuals.

That's why people set up SPVs or
special purpose vehicles,

instead of trusts companies to
own the assets. You know, it's

and then that usually, they, you
know, usually it's an

investment, but they're not
needing to put so much of their

own money to maintain the loan
repayments. Right, they're

collecting rent from another
tenant to cover that. Unless

it's an owner occupier, right?

If you're if you're a business,
and you're trading from that

from that particular premise,
then yeah, look, the pre

approval would be probably in
your favor, because a lot of the

decision is going to be on your
ability to repay the loan, but

for an investment, it's going to
come down to the actual, the

asset. So is it a riskier asset?

You know, is it a specialized
asset? Or is it just a regular

commercial properties that are
in office? Is it industrial? Or

retail? And then, more
importantly, what are the lease

terms? Who's the tenant that's
actually renting this property?

And what's the history of paying
their rent on time? And their

history in business? So, so
like, you're not going to know

that if you apply for pre
approval, you don't know any of

that stuff. So in a way, there's
a term that it's not worth the

paper it's written on. We heard
that before. Well, that's,

that's essentially what that is.

If you apply for paper paper for
commercial property, it's not

worth the paper it's written
doesn't mean anything because

the moment you give him a
property and I'm like, that

doesn't suck, but I'm pre
approved. So what and especially

if you're doing a late start
float, right? The stock loans

don't require anything to do
with individuals. They just

they're there, they prove their
identity. But the approval is

based on the on the lease,
right. So that property is

what's going to determine if
it's going to be approved or

not. And the valuation as well,
that's another thing. So

Residential Lending, they, they
can rely on ATMs, automatic

valuation model desktop
valuations. So literally someone

on the computer doing a quick
search, checking, recent sales,

and curbside, so someone goes
out takes a photo from the

outside, make sure the house
actually exists, not knocked

down or whatever. And then they
do a bit of data search. So that

even those are less costly,
they're much faster to

determine, some of them aren't
even like, with no human

involved at all, like the AVM.

And then there's a long form
valuation. So non bank lenders

will want an actual long, long
form, sorry, short form

valuation. So it's like four
pages, whatever. But it still

requires a full inspection. And
that can cost a few 100 bucks.

But for commercial property,
it's always a long form, which

means it's like 1820 pages, is a
lot more research and data that

goes into it to determine
certain things. And it's not

just comparable sales, right?

It's cap rates, its cost per
square meter. And sometimes just

getting the comparables is
really difficult because there

haven't been recent sales of
that type of property, the net

lettable area they check. So
there's quite more as quite a

lot more information that goes
into that. And the banks rely on

this, lenders rely on this in
order to make the decision to

lend on on it. So that's why
people typically won't apply for

approval, we run the numbers, we
make sure that that hypothetical

rent will allow serviceability.

And then if that takes, and we
know the credit history is good,

then there's no point in
applying for pre approval. And

that's why you always have to
have a finance clause, right. So

if you buy commercial property,
it's not like residential, where

you can go in, you know, waves
of cooling off, no finance, it's

very risky if you do that,
because it's not many lenders

that will do the finance for
you. And the ones that will may

not give you the most favorable
terms. And so having a finance

clause will allow you to get out
of the contract in the event

that you don't get the finance
terms that you're after loan,

amount, interest rate, whatever
it is phase, or get the client,

right, so you can still get out
and get a deposit back. Whereas

residential, many people commit,
because they know they're

already pre approved. And then
they can just, you know, find a

good property. That's nothing,
you know, out of the norm, and

it will be approved. That, yeah,
that'll make sense.

Andrew Bean: So yeah, it
definitely makes sense. And the

finance clause doesn't actually
have to be separate from the due

diligence, cause I think we like
to separate it sometimes to make

it more clear for the opposing
party. But in essence, the due

diligence, finance, getting the
finance and the property should

be part of that. But sometimes
we we have a due diligence

clause, and then we also have a
finance clause, as well, just to

make it a bit more clear. I
think maybe for the, for the for

the buyer and the seller,
probably while we do that, but

it's really it's quite
interesting. So might some of

the red flags or common mistakes
individuals make on their

application that can delay the
approval process? What are they?

And how can we get it back? And
how can we avoid them.

Victor Lagos: So probably a lot
of it has to do with debts and

knowing all of them. So people
apply for credit cards, they

forget, you know, they get by
now pay later, they forget. They

don't consider hex debt and
actual debt. So they don't type

it in when they fill out the
fact fine. This stuff can

actually slow down applications,
because borrowing capacity or

capacity to repay. That's one of
the fundamental things that if

not the most important thing,
when any lender is approving a

loan, do you have the capacity
to repay so any debts that you

have need to be accounted for.

And a lot of the time, it's hard
to get the information as easy.

That's probably one of the one
of the challenging things if

someone's got a lot of loans.

And we need to know what the
loan limit is, what the loan

balances, what the interest rate
is, what the repayments are, how

long the loan term is, what the
maturity date is. If it's fixed

when it's coming off or fixed,
if it's interest only when it's

coming off interest only that
information sometimes it's

really hard to get from multiple
loans or multiples loan splits

for some people got five loan
splits on one Latin and then

they got five loans. So that's a
lot of loan splits. And, and

each of them we need we need
that information for all of

them. So getting that sometimes
it's tricky. And if there was

like a smaller lender, I
experienced this recently,

actually with a client that is
with a lender that's very

uncommon, there are Ukrainian
bank. And getting that

information was really, really
tricky. So we went backwards and

forwards for like, two weeks
trying to get it. And yeah, and

so if you have that stuff up
front, and let's I mean, get it

from netbanking. Like, you just
go on to the, you know, your

Loan Summary page, you can do a
screenshot of that on your phone

app, or on the computer. And
then you provide that loan with

the statements, getting the
transactional statement history

for the most recent month can be
tricky as well. And so like at

the moment, we're in October,
and if someone downloaded the

most recent loan statement, it
will probably get them up to the

end of June, beginning of July,
but that doesn't cover it, what

happens to the last four months.

So that so they need to, they
need to extract the transaction

history to show that their
payments are up to date, to show

what the current balances and
all that other information I

just mentioned earlier. So then
to get that they need to extract

it as a PDF. So I always find it
funny when somebody when I asked

for these dates, and somebody
sends me a spreadsheet, a CSV,

like, what am I supposed to do
with that? Like? Like, do you

really think of banks go to look
at a CSV and say, okay, that

must be the balance, like, you
can literally go in and type

whatever you want in there.

Sometimes, when you go into net
banking, and you say, extract,

there's no option, say print to
PDF. So that's all you can get.

So I understand the you know,
why people will send that but

logically, it just doesn't make
sense doesn't verify anything.

All right. So yeah, that's
that's something that, you know,

can definitely slow down
applications. What else?

Documents? Yeah, look, tax
returns, definitely, that's

something if you've got, if
you've got multiple entities, or

even one, if you're a company,
you know this, you need the last

two years worth, and you may not
have that at hand, or your

accountant has it. So then now
you're waiting for the

accountant to send it. And then
the accounting might take a

while. So having that invoice,
one claim folder ready to go. I

think that will be important. So
that when you're ready to apply,

just upload it or email it or
whatever it is, and and your ATO

notice of assessment, they used
to post it in the mail, and now

they just make it available on
my gov. So just log in, go to

ato Porter and just download it.

Yeah, having that ready. And
what else? Yeah, I think in

general, just filling out the
fact fine. So, you know, every

broker has got a different
process on getting a fact fine.

And the fact find is just what's
your, you know, address history,

employment histories, asset
liabilities, expenses, and your

needs and objectives. Like this
is a requirement for every

application, and how to capture
that. It's always a tricky

thing. For every every broker,
every customer, not many people

like to fill out long forms, I
get that. But a broker doesn't

have the access to that
information. Unless you want

them to sit on the phone with
you for an hour or half an hour

asking you a question by
question. It's, I think that's

counterproductive. I think
you're better off doing it on

your own time when you got some
free time. And just just

preparing yourself mentally, not
donor distractions. And just

Sarah, I'm going to fill this
form out from start to finish,

upload all the documents and I'm
done. You know, not dragging out

for a week or a few days
forgetting about it and then

procrastinating it. Because that
can also slow things down for

everyone. And then last minute,
if it's for purchase and you got

finance do And now everyone's
rushing last minute, because

because they didn't get the
information upfront.

Andrew Bean: Yeah, 100%. I mean,
you have a great online portal.

I think when I was filling out
finance when you're doing

refinancing for me, I think it
took probably about an hour,

hour and a half just to get scan
all the documents and put

everything in there. But after
that there was you know, very

smooth process. I didn't need to
put anything else in there and

and it also probably slowed it
down. Because the property that

we refinancing, I own that with
my my my fiancee as well. So we

needed a little bit
documentation from her. That

actually brings me to my next
point. So when you're co signing

a loan with someone, does that
slow things down? How does the

bank view cosigning loans?

Victor Lagos: Yeah, it can slow
things down because you need

that fact find information for
for everyone, not every borrower

or every guarantor. So if you
don't have that information at

hand, so say you're filling out
for your wife, and you don't

know when she started her job,
you don't know who her boss is

the contact number. So you need
that information. So you need to

ask her when you're filling that
form out or she needs used to

log in separately and fill that
out for herself. So now you need

to navigate that. So you're
available to come up with those

details. And then when you're
estimating your expenses,

usually you have one person in
the household that knows that

and the other one's got no idea
what just pays and like, got no

idea what you spend. Yeah. So
then, so then you need to

navigate that, right? Because
some of the costs you can

estimate are the ones they are
what they are, you know, fixed

costs, bills and whatnot, you
know what they are, you just

have to dig them up, if you
don't have it readily accessible

takes your time. Or you need to
check with the with the other Co

Co borrower that actually knows
that information, or they're the

ones that store all the
paperwork. And then, you know,

when it comes down to ID as
well, so if you're married, and

they've had a change of name,
you know, that can be a, I've

experienced that as a as a delay
many times where, you know,

they've changed their name, but
they haven't updated the

passport. And because I'm out
there, the passport, the bank

site, well, what's their actual
legal name? Well, the legal name

is, which is the married name,
okay, well, where's the

evidence, and they say, I need
marriage certificate, and then

they send me the ceremonial
marriage certificate, which

doesn't mean anything, that's
just, it's just to celebrate or

whatever. So I need the one
that's, you know, transferred

over the Ponderosa berries. And
then sometimes they don't have

it, so then they have to go and
apply for it, get it. So that's

a mission. And, you know, middle
names. So sometimes people

remove their middle name from
their driver's license, but it's

on the passport, or it's under
Medicare, or whatever. So now we

have to find out what that is
with your birth certificate. So

it's just got to be consistent.

If your name is the same on
everything, make it nice and

easy. But general rule of thumb,
your legal name will be your

passport, and your birth
certificate, everything else you

can change, or you can tell the
license, I don't want to have

this, you know, make my middle
name, my first name, blah, blah,

blah. But and then and then
change of name is obviously the

next thing that can can trump
that if you've changed your name

legally at birth marriages, then
we just need a copy of that. And

then we can send it to the bank
and everyone's happy.

Andrew Bean: So just to confirm
your advice, your advice was, if

you want to speed up your
mortgage application, don't get

married, and make it a lot
faster process. So you just have

one legal name, don't even have
a partner. Don't even cosign.

Don't have a partner, don't
cosign, don't get married, that

was the

Victor Lagos: that will make it
easier to get the loan approved.

Just just the main thing is earn
more income like you are to

people. Then you can keep
borrowing. Yeah, that's right.

Andrew Bean: Yeah, get married,
if you'd like to.

Victor Lagos: Yeah, if you
check, yeah, if you want to

change your name, that's fine.

Just change it everywhere and
make sure it's all consistent on

your documents, then it'll fly
through. Yeah.

Andrew Bean: So Mike, can you
just give us like a rundown of

like, how, like, external
factors, like economic factors,

like such as inflation, economic
downturns, like can really

impact the loan approval process
as well.

Victor Lagos: Yeah, so I mean,
everyone, who was, I guess, an

adult through the global
financial crisis, would know

that during that period of time,
you know, 2008, till maybe 2012,

I'd say for that period of time
lending was, was really

difficult. The rules around that
were were changing, things were

getting more strict requirements
were higher capacity to repay

requirements were similar to
now. Rates were rising. So

during a periods like that,
liquidity in the market, it's

much less of a much less
available capital. So then they

have to be much more, I guess,
diligent in who they lend money

to. And because the risks are
also high in terms of high

defaults, then they also need to
start checking extra carefully,

that people information is true,
correct. And it's not

fraudulent, you know, you know,
what do they say? desperate

people do desperate things. And
Desperate times call for

desperate measures are sort of
similar things with, so they

have to be aware of that right,
I have to be aware of people

that are doing things
deliberately to deceive and to

cheat and I have to make sure
that then they're not allowing

stuff to go through. And they
have to look for the ones that

are actually credit worthy,
because there are going to be

people out there that regardless
of what's going on in the

economy, that if they still only
will go cash reserves, and they

can still make moves. So those
are the ones that lenders and

banks wanted to lend money to.

So it's obviously going to be a
premium. So it's usually higher

interest rates, risk fees and
things like that. And also mark

players in the market drop out
so there's been lenders and

banks that have literally
stopped lending, they've said no

more, we're done. And, you know,
a recent example of that, even

as in this current time is, is
Virgin Money, you know, Virgin

Money is owned by Bank of
Queensland. And out of nowhere,

they said, We're no longer
lending you money. We're like,

Oh, that's okay. I'm a bit of a
shock. And bank bank with a list

also bought me back, as well. So
they're maintaining the me bank

brand and the Bank of Queensland
brand, but no more new lending

for Virgin Money. Right. So
that's a resource that they're

cutting back. And now that's,
that's less money available,

less competition, whatnot. And
an even more recent example, and

I'm letting you know, Andrew,
because we haven't actually

caught up since this. But about
a week and a half ago, Adelaide

bank was owned by Bendigo Bank
pulled out of the commercial

lending market. Oh, wow. And
that's, that's really annoying,

because they were my go to
lender for many reasons, then

moving forward, I can't use them
anymore. And no, borrowers can

access their products anymore.

So I don't know the exact cause
of that. It could add could

could be with the economy, but
also could be because they're

merging the brand with Bendigo.

And that's probably trying to
consolidate the products and

systems. So. But yeah, that's
obviously an impact. So you

don't ever know that this bank
that you go with this lender,

you go with this guy he's going
to be around. So you can think

they are and you proceed like,
like, like, everything's normal,

but then all of a sudden, at any
given time, they can just pull

out of the market. So having
options is always important to

to sort of shop around and be
you know, have backups and go to

different lenders that will
continue lending course, the big

four will probably not go
anywhere. But the the hardest to

apply for loans with and
probably the most, sometimes the

most expensive, depending on the
type of transaction as well. But

the you know, I think CommBank
recorded $10 billion in profit,

like so, they're not going
anywhere anytime soon. But even

then they're cutting, they're
cutting costs as well, right,

there's a there's a new movement
to, to automation, and to AI. So

because of that, there's going
to be more and more jobs lost

more staff that, you know, jobs
that don't need to have people

to fill them anymore. It's gonna
be computer programs that do a

lot of this stuff. And, you
know, how that will affect the

lending environment? Well, I
guess only time will tell. But I

think it will have to be more
and more transparent more than

anything else. Because in order
to make, you know, decisions

from data, well, the data needs
to come through. In its raw and

fruitful and you can't
manipulate it you can't, you

know, not disclose things, you
kind of just say, Yep, here it

is. And am I credit worthy,
right. So that will that will

have that could speed things up
for people that are credit

worthy. But the ones that are
not? Well, all you can do is

just Yeah, learn improve your
financial position. So then you

can apply again, in the future

Andrew Bean: people were so
upset with, you know, the amount

of money that Commonwealth Bank,
like made as a as profit, like,

it is a business like this as
opposed to profit, like, I'm not

sure like exactly the ins and
outs of it. But like, if they're

making money, that's what
they're there to do. If they

weren't making money, they
wouldn't be around. It's just

funny, like, bank is just a
business that a very good

business that is there to make
money, regardless of whether

they're charging high interest
rates and other banks, if people

are willing to pay those rates,
then they'll keep charging them,

you know what I mean? So it's
just like any other business,

they're there to make as much
profit exactly right.

Victor Lagos: And you as a
consumer or a borrower, you

know, you can use the bank's
money to help you create

financial freedom, right, you
can leverage that to put you in

a better position. And you don't
have to take out debt to put you

in the worst position. Like
that's, it's a it's available to

you, but you need to kind of
take that responsibility to, to

educate yourself, to have people
around you to guide you the

right way to actually use it for
your benefit, not your

detriment, right, because it can
happen both ways and it does to

a lot of people

Andrew Bean: 100% So mate in
terms of like, like how long it

would usually take to receive
the money after you get a loan

approved? Can you just give us a
quick rundown on literally like

the time so like investors know,
or new investors know what they

can expect.

Victor Lagos: It depends on what
you're applying for. So if

you're applying for setColor if
you've got the car ready to go

you expect you have the money in
between one to five days? If you

don't have the car, well, you
get the money when the cars

Abella, right? If you're buying
a residential property,

typically between four and six
weeks, right, that's the

settlement period. So if you
apply today, yes, it might get

approved quickly or slowly. But
the money doesn't exchange hands

until settlement happens
settlement is when the transfer

of the existing title will get
moved to your name. And that is

subject to the contract of sale.

And typically, depending what
state it is, that's four to six

weeks, it can extend can be 90
days, sometimes as in six months

settlements. But typically,
that's person. If you're

applying for if you already own
the property, and you want

equity release, so you're
essentially applying for equity

that you have as cash or
consolidation paying off other

debts, then that can vary. So it
can be I'd say, probably the

fastest you probably ought to do
it would be around two weeks,

I'd say. But realistically, you
know, it can be done faster,

depending on the bank, if they
already have a mortgage, there's

no new mortgage required.

There's no transfer of title.

It's just proved a loan, signing
the documents, nominate the bank

account, here it is done. So
that can be done in a few days.

Some banks can take longer can
take, you know, if they have to

do a valuation on the property.

They need wet signatures and
documents. So that might, that

might push it out a bit longer,
maybe three weeks, possibly four

weeks, something like that. You
just have to determine what,

like if it's about the
timeframe, then you may not get

the best rate. Sometimes the
ones that offer the best rate

are going to be the slowest.

Because the more applications
they have, the slower they are.

And usually the more
applications they have is

because of the cheaper. Right?

So it's like you can't have it
all. If you want it all. Well,

you can't have pick one. What's
your priority? You want fast?

Pay labor, Monterrey if you want
cheap, white bit longer?

Andrew Bean: Yeah, like private
finance.

Victor Lagos: Yeah. Yeah,
exactly. Private Finance.

Perfect. You have that same day,
sometimes. Literally, same day

for like a million dollars or
more. Yeah, but you'll pay 20%

interest rate?

Andrew Bean: Yeah, I spoke to a
private financier recently,

couple months ago. And they're
like, Yeah, okay, we can do it

for 20%. So 20%, holy bejesus.

It's a good, it's a good
business to be in private

finance. Right now, since
interest rates have gone up?

Victor Lagos: Yeah. So maybe
when you've got someone's just

gonna say, if I can avoid
private finance, I will. But

sometimes it's a it's a
necessary product, depending on

the circumstances.

Andrew Bean: 100%. So in terms
of like setting up offset

accounts, you know, back in the
day offset accounts were like a

very, very good strategy, or it
was, you know, made out to be a

very good strategy. Can you just
like, give us your opinion on?

Do they really make a big
difference on setting up an

offset account to try and pay
down your loan quicker? You

know, obviously, you're
offsetting the interest of your

loan, which is great. But if you
have no money in an offset

account, it's, you know, pretty
much pointless, when does the

offset account really make a big
difference? And should the

listeners set one up?

Victor Lagos: Yeah. Okay. So
with an offset account, they

typically have an annual fee
attached to them, or a monthly

fee, depending on the bank. And
the main thing is, if you're

able to offset the loan, more
than the cost of that annual

fee, and save on interest more
than that, then it's probably

worth it. But if you can't,
because you don't have access to

capital, it's just going to be
another cost, right and ongoing

costs and unnecessary costs. And
depending on the bank, or the

lender, some of them actually
give you a bigger discount on

your interest rate, because you
chose the offset product. So if

you chose a basic product, which
doesn't have offset and only has

redraw, you're actually paying a
higher interest rate. So you

need to work out how much
interest will I pay on the basic

loan with no annual fee? No
offset? And how much interest

will I pay with the offset loan?

And including the annual fee?

Add those two up, which 1am I
better off paying. So sometimes

the offset loan makes more sense
because you get that additional

discount. So even if you don't
have extra funds to offset,

you're still better off because
you pick the basic one, you're

paying higher interest, which
which kind of Trumps the annual

fee anyway, does that make
sense?

Andrew Bean: Yeah, definitely.

Yeah.

Victor Lagos: But then if you go
to a another bank, they'll have

the exact same interest rate.

With this, whether it's a basic
loan, or whether it's an offset

loan, and the only difference is
the offset loan, you pay an

annual fee. So if If you're
picking a bank like that, and

you don't have access to
capital, when I'm talking, when

I'm saying 10, grand, 20, grand,
30, etc, you don't have access

to that and you won't like
you're exhausting every cent

that you have in order to buy
this property. Well, what

exactly are you offsetting your
income, right, your income will

obviously you have to pay the
mortgage or pay your outgoing

cost, and whatever's left, you
can offset the loan. But if

that's only 100 bucks a month or
a few $100, well, if you're

paying 400 bucks a year, for the
offset account, you might as

well just go for a basic loan
that only has very variable

basic loan, because then you can
just put extra funds into the

loan, and has the same net
effect as an offset account. So

you're actually just paying
reducing your interest each

month. And now you just don't
have an annual fee. That's what

I would recommend if you don't
have access to capital. But a

lot of people do have access to
capital, or they have parents

even I've seen that where people
like, Well, my parents have got

a house paid off in the city on
half a million dollars with the

cash, well, they can actually
park that money in my offset

account. And whenever they need
it, they can access it. So now

they're actually reducing their
interest on their home loan from

their parents money, because
they've got an offset. And the

parents are the ones that have
access to another. I mean, of

course, they can still withdraw.

But typically, there's a trust
factor when you do that, right.

And so now they're getting the
benefit of an offset. But if

they had redraw, it's probably
more risky for the parents to do

that. Because when you don't
have offset, technically, it's

the bank's money. So you talked
earlier about economic

conditions? Well, one of them is
hypothetical, you had a million

dollars loan, and you had no
offset account, and you put

$500,000 of your money into the
loan, you would have 500,000

available, Rachel, and you would
owe 500,000. But technically,

that's the bank's money, they're
allowing you to have access to

the money as a redraw facility.

However, in all, for all
intensive purposes, that's a

principal payment. So if there's
a run on the banks, they can

say, sorry, you paid back that
money, it's no longer accessible

by Rachael, and you still owe us
500,000. And they're like, hey,

whatever the other 500, or you
decided to put into the loan,

you've paid that back off the
principal. Now we've decided we

need that capital, and you don't
have access to it. So that's the

risk. When you don't have an
offset. If you have an offset.

It's a bank account. It's your
money. So you have a city and

offset. You know, there's a run
on the banks bank can't just

say, hey, we need to withdraw
the money from the offset and

put it into the loan like that.

They can't do that to your bank
to your money. So it is

protected in that respect by
sitting in an offset, because

it's essentially like a
transactional account. It's not

necessarily paying for the loan.

So that's, yeah, that's another
example.

Andrew Bean: What about like
with like offsets? Obviously,

there's a difference between if
you have a principal and

interest loan to an interest
only loan, can you just explain

to us like, the difference
between having offset attached

to an interest only loan
compared to having the offset

attached to a principal and
interest loan?

Victor Lagos: Yeah, it's a
really good question, because

this comes up quite a lot where
I have to explain it to many

people. So I'll try to explain
the best way I can, because then

I can just say, Hey, listen to
this, and then this will explain

it. Okay, so same example.

million dollars, right, your
million dollar loan, and the

loan is principal and interest,
p&i. If you put $500,000. In an

offset account, you're paying
interest on 500,000. But you

still owe a million. But your
repayments are still based on

what you owe, because you owe a
million. So you make p&i

payments on a million dollars,
even though you don't owe a

million, hypothetically, only I
feel familiar. Because you're

not paying it to the loans,
you're not offsetting, you're

only offsetting the interest,
you're not actually paying back

the principal. So the banks do
expect you to make principal

payments on a million dollars.

And that's where people always
get a bit frustrated, because

they're like, I only owe 500,
I'm still making higher

payments. Well, you can't have
it both ways. In this instance,

you can't say I want to make
repayments of 500,000 while

still having access to the other
500. Because now you're saying

that you haven't paid it back.

It's like, if you tell the bank,
I don't want access to the 500k

anymore to your money, then
they'll do what's called RE

amortization. So they'll
actually remove the money from

offset and put it into the loan
and then re amortize on 500,000

and recalculate repayments over
the remaining term, then you'll

get lower payments. But now if
you ever wanted access to the

500k, again, you need to apply
for it again go through the loan

process, right borrowing
capacity, credit history, all of

that. If you did interest only.

This is where you get the best
of both worlds. In that if you

if you have million dollars and
the loan is injured sternly,

you're paying interest only
that's it each month, the bank's

minimum requirement is that you
pay interest. If you put

$500,000 into an offset account,
then your interest is dropping,

right, the interest would change
because now you're getting your

interest is calculated on
500,000. So therefore, your

minimum payment is interest on
500,000. So you're not paying

interest on the money, that's
offset anymore. So the 500k

interest rate essentially, and
the other 500k, you're paying

interest. So then, you're
getting the best of both worlds,

because now you still have
access to 500k, and your minimum

repayment has dropped. Based on
the remaining balance, even

though you still owe a million
technically, because the

interest is being offset, the
actual interest charges dropped,

so your repayment has dropped.

And also, the other
misconception is that if you're

paying interest only you can't
pay principal. Well, that's not

true. You can pay principal, but
you've got the choice to pay

principal, when you want to pay
it not when the bank wants you

to pay. So you can still make
extra payments, pay it straight

on the loan, not to the offset.

At any given time, you can do it
in lump sum, weekly, monthly,

whatever it is. The only caveat,
I guess is that you have to then

pay a higher interest rate,
typically for interest only

loans. But I think that the
benefit can outweigh the cost,

the other detriment of interest
only and I wouldn't win. It's

not really about your question,
but I thought I mentioned it is

that it impacts your borrowing
capacity, sometimes. So if you

get an interest only low, then
your borrowing capacity is at a

detriment, the longer the
interest only to so if you take

it out for five years, then
that's affecting your borrowing

capacity for regular residential
consumer lending. Any consumer

lending at this point?

Typically, if it's a bank,
because they're gonna look at

your principal and interest
remaining term when they

calculate repayments. So if you
did a 30 year loan term, you did

a five year interest only you've
got 25 years left, so they're

calculating your stress testing
your repayments at 25 years p&i

principal and interest versus if
you say that p&i From the

beginning, 30 years, you've
stretched out over 30, your

minimum repayment is lower their
stress testing 30. So now you're

able to borrow more. That's
that's the only downfall I

guess. So what I try to do my
customers is typically go for a

two or three interest only Max,
because let's face it, you're

not really going to stick to
that bank for five years, you're

probably going to refinance in
that time anyway. So that gives

you the opportunity to then
refinance, restructure and go

back to interest only again, for
another two years and other

three years. Yeah, exactly.

Andrew Bean: And that's exactly
the same thing I tell. Our

clients are police the property
is that like, like, why would I

go interest only? Why wouldn't I
just go p&i And I can start

paying the commercial property
off. And like, Well, you got

interest only because it gives
you the option if you want to

pay principal off, so you might
set it up. So you pay, you're

only paying interest. And then
you can pay the principal enter

the loan, but then one month,
you might have some huge

expense, you might add operation
or something, and you're not

required to pay the principal.

So you have that flexibility
going forward to have lowest

repayments possible now, and if
you want to you can set it up

with a 10 year pay down plan. So
you are paying the principal

off, it's just not required from
the bank.

Victor Lagos: Exactly, I would I
would put it exactly the same

way as you, you want to have
less financial pressure, right?

It's not just that you might
have a change in circumstances,

right? You're, you know, one of
your stops working you and your

partner, the other one, you have
a baby one goes part time. So

now all of a sudden, you're what
your loan got to prove that to

pay principal and interest.

Well, you're not in a position,
you don't wanna have to call the

bank and say shit, I can't
afford it. I'm on financial

hardship. So paying interest
makes it makes it manageable,

and then go back to principle
later. And the other

misconception is that you can
switch to interest only whenever

you want. No, you can't. So a
lot of times people will apply

to apply for PMI and I just got
interest only call the bank can

I get? Yeah, you can we need to
apply for you to apply for a

new application. And in the back
of the head, I can't because I'm

unemployed. But they won't say
that. So that's why but you

could do it the other way. So if
you started interest only. And

then at one point, you know, you
sell some assets, you get some

you know, you get pay increases.

You're like I don't want to pay
interest on anymore. I want to

actually pay off the principal.

It feels really that important
too. And you wanted to see the

minimum payment changed. You
could call the bank and say

please switch me to PMI and they
will do that and they'll give

you a lower rate. No financial
assessment required. No

application required no
documents, just do it over the

phone. But the other way if you
want to go from principal and

interest interest only now they
have to reassess everything. So

that's what better to start
interest only switch it the

other way then otherwise you
might end up in a position where

you can't go to interest only
because

Andrew Bean: you're paying
interest only and you're like,

hey, I want to change, you know,
to p&i and that banks like,

okay, pay me more sweet. You
know, of course they're gonna

like say yeah do it do it. I
mean, come on me more but the

other way around, it's like,
hey, you know like you're paying

this and now you want to pay a
lot lower price and they want to

pay less. Why are we doing that?

Let's check. Yeah,let's just
check the situation.

Victor Lagos: Yeah. Yeah,
exactly correct. That's a good

way of looking at it. Yeah. It's
like what do you owe your say

you owe your brothers for money
and you'd be paying 1000 bucks a

month. Why? That reason just to
manage cash flow Give me back my

money.

Andrew Bean: So we will touch
base on paying with an offset

account with paying the p&i so
that the actual like, I just

want to make sure like this is
how I think about it in my head.

So the actual repayments don't
actually change. If you have

money in an offset for a p&i,
it's just it just changes what

portion you are actually paying
down, you know what I mean? So

if you have money in the offset,
then you're paying down more of

the principal, but your actual
interest repayment does not

change. And if you have no money
in that offset, then you're

paying more interest. So that's,
in my mind, that's how it works.

That's how I understand it.

Victor Lagos: No, no. That's
exactly how I explained it. It's

like, if you imagine you're
making the same minimum

repayment, where the when you
have money in offset, well, then

because the interest is reducing
each day, each month, because

you remember, interest accrues
daily and charges monthly. So

the more often you put money
into the offset, and the more

amount you put in the offset
will reduce the interest on your

monthly due date every single
month. And then when you see

that interest drop, but your
payment is still the same, then

more of your payment will go
towards the principal, rather

than the interest. So then
you're essentially paying off

the loan faster. So instead of
30 years, by having money in

offset, you might pay it off
into 25 years or 20 years,

depending how much you keep
adding in there. That's how it

works. But yeah, you explain
exactly

Andrew Bean: splitting the
mortgage might I've done this

before in the past where I've
had a portion that's fixed a

fixed rate. And I've also had a
smaller portion. That's

variable. And that's basically
like to limit my risk against

inflation interest changes in
the market. Can you just explain

like, how splitting the mortgage
can be a good strategy when you

first buy a property?

Victor Lagos: Yeah, so look,
it's very common that people

split their lunch, I usually
tell talk to my clients about

splitting it to get the best of
both worlds part fixed with

limited risk part variable with
more flexibility, but more risk

in terms of rate increases. But
at the moment, it's a time in

the market where the fixed rates
actually higher than your fixed,

sorry, your fixed rates higher
than your variable. So by doing

that, you're kind of gambling to
an extent, you're sort of trying

to time the market and say, hey,
I want certainty. And for that

certainty, I'm willing to pay a
premium. Because just in case

rates go higher, I want to know
that I've locked in my rate,

even though because the variable
rate will then go higher than

the fixed. So then at that
point, in the future, if that

happens, then I'm going to be
winning, essentially, at the

moment I'm losing, I'm taking
short term loss with the chance

that I'm going to get again, if
the fixed if the variable rates

surpass the fixed rates. So
that's, that's the time in the

market that we're in with, if
someone wants to do that,

there's no guarantee that the
variable rates will keep going

higher than the fixed. And where
that can work against you is if

the fixed rate if the variable
rates drop, because say next

year, they start dropping rates,
and you fix the majority of your

loan. Well, you're in a bit of
a, in a pickle, as so to say.

Because if you want to get out
of the loan, because say you're

you fix it at say, six and a
half percent, and the variable

rate drops to say five, you're
like, dammit, I want to get 5%

rate when I'm stuck on six and a
half and next two years. So you

say to the bank, I want to get
out of the loan, I want to

switch it to variable, and they
say you can't do that. But now

you have to pay break costs. And
those break costs can be

significant. It can be 10s of
1000s of dollars sometimes. So

then you just say, Well, I'm not
going to pay $10,000 in

breakfast, I'm just going to
stick it out for the next two

years and pay six and a half
percent. So by having the loan

split, then at least you're
getting the benefit of the

reduced variable rates for some
of your loan. Right so then

you're not sort of thinking
Dammit, I'm stuck paying fix for

this whole two, three years.

Some of its variable so you're
still benefiting some somewhere

when it drops. The other thing
is the flexibility on on

variable. So if it's variable,
yes, it can fluctuate up and

down. How Wherever you can pay
it off at any given time without

any restriction without any
limitation, like we talked about

paying extra payments, and you
can have an offset account.

Typically, if you have a fixed
loan, you can't have an offset

account, there's only like two
or three banks that offer offset

on a fixed loan, but the
majority of them don't. So

therefore, you've got the
flexibility of offsetting,

making large principal payments
when you want, putting money in

redrawing it out, you know, all
that interest only offset, or we

talked about, if it's variable,
you can do all of that, if it's

fixed, that can't do any of it.

The maximum you can pay extra is
like 10 grand a year. And

anything more than that they can
penalize you and say sorry, if

you've breached your contract,
you told us you're gonna lock

this fixed rate in. And now we
have to charge you break cost to

break your loan. So so that's a
yeah, that's, I guess, the

downfall of having too much of
your loan fixed, it leaves, it

leaves you without the
flexibility. And if rates drop,

you're not getting the lower
rate, and you have no offset

account linked to it, typically.

So yeah, I think the obviously
the certainty part, you need to

work out your budget, so your
household, and if you literally

cannot afford it, and I have
customers like this, where

they're like no, I've had fixed
before, I just want to know that

this is my repayment, I don't
care if rates go up or down, I

just need to know that I can
budget and know that if I can

afford X amount every single
month for the next three years,

or two years, whatever, then I'm
happy, I can save, I can pay

back debt. And that's fine, we
can do a fixed loan, and we can

only have a small amount,
variable 20, grand 30 grand up

to whatever amount you believe
you can offset during that term.

So in two years, if you think
you can save 20 grand, then have

a 20 grand variable loan,
because then you can pay that

off and still have access to it
as redraw and have the

flexibility to pay it down. But
if you did everything fixed, and

all of a sudden you had all this
extra cash, and you're limited

in terms of where you can put it
because otherwise you're gonna

lose your fixed rate or break
the loan? Well, you probably

should have had some a variable.

Split law makes sense?

Andrew Bean: Yeah, 100%. And
this is what like, it's, we're

in a bit of a, because we're at
interest rates where it's like

the average norm. So it's, it's
actually pretty uncertain

whether you should fix or you
should just wait. Like,

personally, I'm not going to be
fixing any of my loans. Sorry,

personally, I'm not going to be
fixing any of my loans for the

foreseeable future, because I do
believe that interest rates will

come back slightly, but I think
they'll stay around this level

for a while now. Because this is
the average, it comes back down

to when interest rates are very,
very low. People were fixing,

and that's created the mortgage
cliff, can you just explain what

that is and how impactful that
is for like a lot of

Australians.

Victor Lagos: Yeah, so
obviously, during that period of

time, when interest rates were
really low, people were fixing

it, you know, 2%, below 2%. And
the mortgage cliff is that when

the loan comes off a fixed in
that period of time, they're

gonna now go to a variable rate
that's, you know, 6% or more.

And that's a massive shock to
the system, because their

repayments on 6% versus 2%. A
significant and their household

may not be able to afford that.

And that's assuming their
circumstances haven't changed if

they've gone worse, less income.

And obviously, we have inflation
and cost of living has gone up.

So maybe there's less disposable
income, that's a scary place to

be because now your loan is
unaffordable. So then, if you

can't afford to keep the house,
all you can do is sell it. And

then what are you gonna do rent
or move to another area to buy

somewhere cheaper, and still
paying a higher interest rate,

just less of a loan amount, but
also the mortgage prison. Now

the terminology term that's sort
of thrown around, that's if

you're stuck with that bank. So
it's your because remember, they

can't call that that loan in it
can't say now that now that

you're on six and a half
percent, and you on paper, you

could only afford, you know, up
to say four and a half when we

assessed the loan, or five and a
half. They can't just say now

you need to pay us the loan back
in full. Right? They don't do

that the bank gave you a 30 year
loan. So they kind of have to

work with you to base based on
what you can afford to repay.

And if you're wanting to get a
better interest rate, because

they've put you on say six and a
half, but you know, a competitor

will give you say, I don't know
5.9 or something, or you want to

refinance, and logically you
think, well, if I'm paying six

and a half now and another bank
is paying paying me 5.9 Why

can't I get the loan? Because
it's lower. So if I can, if I

can show that I can pay the six
point five, then I should be

able to get the loan 5.9 Because
there's lower payment, right?

But it's not as simple as that.

The banks do a stress test. So
they calculate 3% above the

actual rate. So they're going to
stress test your situation and

say, Alright, fine pay 5.9 on
the new new loan, on the

existing balance, you've had the
same balance, or it's come down

slightly in the last two or
three years. We're gonna

calculate that instead of
calculating 5.9. We're gonna

calculate that at What's that
8.9? All right, so can you

afford the repayments at nearly
9%? Probably not. And because

you can't, they can't approve
the loan for you, even us the

exact same amount the already
up. So that's the prison that

you're in. Because you can't get
a new loan to refinance, you're

stuck with the same bank that
originally lent you the money.

So you're at, I guess, you're
the control of whatever they

want to charge you that unless
you sell, that's the only way

up. So the way the tackle that
so that people still can have an

opportunity to refinance is four
banks or five banks have come up

with a streamline process with a
special APA ruling, where they

can use a 1% buffer instead of a
3%. buffer. So if they can get a

rate of say, 5.9, they'll
calculate it as 6.9. So if they

can still show some level of
affordability, that stress test,

then they can still refine it.

But to be honest with you, I
haven't done many of them, I've

done like to the most of people
who are with a bank that they're

in a mortgage prison, typically,
the banks have been flexible in

giving them a competitive rate,
what the in terms of what the

variable rate would be that the
market is offering. So so

they're not in a way they are in
a prison, but the prison is

giving them a rate that they
would get anyway, so that's

okay. Right. It's only if that
bank is not giving them a

discount, if they're not
matching other banks. And

they're just forcing them to pay
a higher rate. That's when that

that's, it's obviously not a
good situation to be in. But if

they're willing to price it for
you, and bring the rate down to

whatever the markets offering,
then yeah, that's, you're pretty

much just the best you're gonna
get, to an extent leads for this

period of time. Because
remember, if you're adding 3%

buffer, well, then that means
that you're protecting the

market for rates to go up to 9%.

But realistically, will they go
up that high? What market

conditions? Do we need to be in
for that to happen? I don't

know. You tell me like if people
owe more than a million dollars,

if they're paying 9%? Well, I'm
pretty sure most people aren't

going to be borrowing money
anymore. And that's gonna affect

the economy at large.

Andrew Bean: Yeah, there has to
be like some, you know, sense in

the actual rate that they're
putting on top of the of the

rate that's already there. Like,
because we were so low, because

it was like literally, like
record low interest at 2% 3%. On

top of that was actually pretty
fair, it's actually probably a

little bit on this, it probably
should have been like 4% to get

us like this, like 6% Like where
it could go. But there has to

be, you know, a little bit of
sense on like, Okay, well, is it

gonna go to 9%? Probably not
like that. That's a really,

like, we've already like, have a
huge cost of living right now,

CPI is going down, although
petrol prices are still up a

little. But realistically, there
has to be some sense saying it's

probably not going to go to 9%.

And if it is, there's gonna be
some economic catastrophe again,

like he's just gonna be way too
much interest for people. And

there's gonna be some serious,
like, ramifications from that.

And there already have been, it
hasn't been like, as hugely

widely reported, but people have
been having to sell people have

been losing their houses. It's
just not widely reported. But in

terms of like, where the
interest rates could go, now, if

we're at like, you know, six or
7% for a commercial property,

then the actual buffer they put
on, it should only be like one

or one and a half percent, it
should it should be minimized,

like it has been with that
product you're talking about.

Victor Lagos: Yeah, yeah,
exactly. Right. I think that's

probably where things will go at
some point next year, where they

realize that rates aren't going
to go that high. So they're

probably going to go across the
board and only put a one and a

half percent buffer, or 2%
buffer, maybe max, to allow more

people to borrow and to keep the
economy moving. And one other

thing I wanted to touch on,
which was the livestock product

for commercial property. So
that's a that's been a tough

product to get across the line
since we've had rate rises

because because of the rate
rises, they've added on the

stress test calculations on the
way they calculate the interest

coverage ratio. But one of the
Thanks. And I won't tell you who

that bank is because I need to
determine your circumstances

first, but one bank has just
come out with a new list of

products in the last two months,
and it is basically blowing the

other banks out of the water in
terms of borrowing capacity,

it's back to what it was, it's
1.5 times interest cover ratio

on the actual rate, it's up to
65% LVR. And we're talking about

rates between 6.54 and 6.59%
that we're getting right now. So

if we're netting net percent net
6.5%, net yield, even 6.2, maybe

on a commercial property, that
should be enough to actually

borrow 65% LVR. So if you can
get 65 of that, right. And at

the moment, as a promo, I don't
know how long that promo is

going to be, but they're waving.

Depending on which state you're
in, I've noticed that they're

actually waiving the application
fee, which is up 2.75% of the

loan amount, so no application
fee, and they're also covering

the valuation costs as well. And
you can imagine that could be

two, three grand sometimes for
commercial property. So

essentially, next to nothing in
phase, no serviceability

assessment, except for the rent,
and you're getting 65% LVR. And

remember, I also do equity
released to cover that deposit

as well. So if you've got enough
capacity to to borrow the

deposit the 35% that you need,
plus stamp duty plus a buyer's

agent fee. Well, you could
literally get 100% loan and

otherwise wasn't possible
because you're borrowing power.

It won't be positive cashflow,
if you borrowed everything, but

at least you're getting in,
right. And if you've got access

to that, that equity, and that,
you know, even if you've got

some cash contribution, you
know, I'm doing what at the

moment for, you know, one and a
half million. So the max loan

amount is one and a half million
for this product. So what's one

and a half minute What 65% On
one and a half million? What's

that? I don't know. I can't
calculate in my head right now.

But that's that's getting them
at least to two point something

million dollar property.

Andrew Bean: So it's a one and a
half million dollar starting

deposit.

Victor Lagos: No loan? No, 1
million is 65%. So calculate

that. So if you want an opinion,
make that 65%. Yeah, so divide

that by 65. And times that by by
by 10. So it's not so divided by

six five times by 165%

Andrew Bean: of 1.5 million.

Victor Lagos: No, not the other
way around. You want 1.5 million

to actually be 65% of x purchase
price somewhat. Does that make

sense? So so the way I would
calculate that is one and a half

million divided by 65. Okay,
times a by 145

Andrew Bean: Do that divided by
64 times 100. So it's 6307

summed up

Victor Lagos: by 100. See, so
$2.3 million purchase price you

can get as a purchase price and
borrow 1.5 million on a lease

dock loan.

Andrew Bean: Yes. Share what a
bank doing that with me off air

because that sounds like an
absolutely Ripper product. And

if you want Viktor to also share
how you can get some free money.

Give him a call. So Mike, where
can listeners go to find out

more about yourself?

Victor Lagos: Okay, just for
starters, no free money here.

You have to pay interest in
fees. Yo, pretty buddy. Well,

listeners, listeners can find me
at my website Loggos

financial.com.au. Or they can
just google like US financial.

They can also find me on my own
podcast, which is debt to

financial freedom. You'll find
that on YouTube, as well as, you

know, iTunes and Spotify. And
yeah, look, you can book in a

free chat. We can just get to,
you know, see if your

circumstances allow you to
borrow. It's no cost to have a

chat with me. And if we're the
right fit to work together, we

can discuss where to go from
there.

Andrew Bean: Alright, man, well,
that's a wrap. This has been the

financial experts Victor Lagos
and Andrew been on the financial

freedom series. Make sure you go
and talk to Victor to get some

free money. He's just standing
it out. Alright guys. See you

guys. Thank you.

Victor Lagos: Thank you. Thanks.

Cheers.