The Pros and Cons of Multiple Lenders for Your Property Investments
When you are building your property portfolio, you will have to decide whether you want to stick with a single lender or branch out and expand your portfolio over multiple lenders. Your decision will have a lot to do with your temperament as an investor, and what you intend to achieve with your investment.
Consolidate your portfolio
If you prefer the convenience of keeping your portfolio in one “bundle”, then a sole lender is the right fit for you. All your equity will be in one place, and you have one financial statement, making it easier to assess at a glance how your portfolio is growing.
A single lender will cross-collateralise your properties, giving you greater access to equity, so you can acquire more investment properties sooner. Gathering your equity from multiple lenders in order to make an additional purchase could be more complicated and time consuming.
Boost your borrowing power
One of the benefits of multiple lenders is that you can improve your borrowing power. When your solo lender assesses your borrowing potential based on your entire portfolio, they will add buffers into the servicing calculation, to allow for changes in interest rates or your personal circumstances. When you approach an alternate lender, they will simply base their assessment on your repayment amount with your current lender. Without all the additional costs, your borrowing power is much stronger.
Manage your mortgage insurance
Many mortgage insurers have an upper limit for insurance, even though your lender will be prepared to lend you much more. If your entire property portfolio is consolidated with the same lender, you might find it more difficult to maintain adequate insurance. By splitting your portfolio among different lenders, you also have different insurers, so you are covered for your entire portfolio.
Expand your loan options
When you stay with one specific lender, you are limited to the loan options they provide. Opening the field to multiple lenders gives you a great deal more freedom to find the right loan for each investment property.
Manage your equity
If your investment portfolio is spread across a range of different locations, some properties will increase in value while others drop. With one lender, your entire portfolio is seen as one investment with one overall value. This means you won’t necessarily benefit from the improved equity in the properties that have rapidly increased in value, as these will be balanced out by the properties that dropped in value. However, with multiple lenders, each property maintains its individual value, and you have access to the increased equity from the properties that are thriving. This additional equity enables you to invest in more real estate or boost your income, depending on your investment plan.
By spreading your portfolio across multiple lenders, you are free to make independent investment decisions without being controlled by one lender’s restrictions. You also have the versatility to change a loan package if it is not the right fit for a specific property. As your portfolio expands, you could place a few properties with each lender, giving you access to benefits such as volume discounts, without compromising your individual control.
Some property investors prefer to stick with one lender to simplify communication. You’ve built up a rapport with your lender, and they know your goals and your strategy. However, the person at the front desk isn’t necessarily the same person who will be assessing and approving your latest loan.
If you value consistent communication and you are drawn to the benefits of multiple lenders, talk to a mortgage broker. Your mortgage broker has a wide panel of lenders to help find the right loan package for each property and they can help you manage all the administrative details for each loan.