Better bond

Question:
We have two properties, but are not bond free yet. We have seen a property we would like to live in.

Should we access further on our two bonds or apply for a completely new bond for the new property?

Answer:
In terms of registration costs it would be cheaper to access existing funds in your current bonds. In addition you can claim the interest against rental income so it would make sense to increase the size of those bonds rather than taking out a higher bond on the property you will be living in.

A word of warning — make sure that you can afford to pay all the bonds should a tenant move out. Also make sure that you budget for a few interest rates hikes. The cumulative effect of multiple bonds going up at once can put a lot of strain on your cash flow.

Question:
I would like to look around at various options in order to move my bond so I can get a better rate. Where do I start and what are the pros and cons?

I hear that if you ask a bond originator and he or she gets some offers you cannot contact those lenders directly or through another bond originator, even if they can offer a better rate. Is this true?

Answer:
The first place to start is at your own bank. If you have a good relationship with them and you have been responsible about payments they would rather offer you a better rate than lose you as a customer. It may, however, take a little work on your side.

When you call your bank and ask for a lower rate you will generally be dealing with employees that do not really have an interest in giving you a better rate. You need to work your way up the hierarchy until you get to someone who knows that allowing you to switch will cost their bank hundreds of thousands in income in the long term.

So, when a spotty faced twenty something says ‘no’ ask to speak to a superior and keep going until you get a ‘yes’. If they dig their heels in only then should you look elsewhere.

You can use a bond originator if you like; they are generally quite successful as they have a lot of bargaining power with the banks. They get a commission from the bank for finding the business so that extra half a percent could be yours if you approach banks directly.

However, it is a tad unethical if you get the originator to give you a deal and you go and negotiate directly with the same bank. I assume that they have some kind of legalese in their documentation to prevent you from doing this. They will do a lot of work to get you the deal (it is a mission applying to all the banks) so they should at least be paid a fee.

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