Should you spread your loans amongst different lenders?
One of the financing decisions you’ll have to make as you grow your portfolio is whether to spread your loans amongst different lenders. The alternative option, of course, is to keep your loans with a single lender. So, what are the relative advantages of each of these strategies?
Going with one lender
The biggest advantage of having all your loans with a single lender is that you may benefit from volume-based discounts offered by the lender, depending on the total amount of your borrowing. This could mean slightly cheaper interest rates and reduced fees, potentially saving you money over the period of the loans.
There is also a convenience factor in having all your loans in one place, both in terms of managing your loans and submitting further applications.
Some people will also argue that, with this strategy, your lender will be more willing to lend you further money as they have a complete picture of total borrowings. This, however, is debatable.
Going with multiple lenders
A strong argument for having your loans with different lenders is that you can potentially borrow more money versus the single lender scenario. A lender who is right for your first loan is highly unlikely to be the lender most suited to your 4th or 5th investment property. Lender policies constantly change and spreading your loans makes it more likely you can move to the next property sooner.
It’s not a universal rule but in my experience you can typically do more with multiple lenders, but it does depend on your specific strategy.
One of the great things about spreading your portfolio amongst different lenders is that you can pick which of your properties you want to refinance when releasing equity. If all your loans are with one lender, the lender may require current valuations on all properties. In this case, the growth in one property may be offset by the decline in another, leaving you unable to draw equity.
Using multiple lenders also makes sense from a risk-management point of view. If you default on a loan, it may be more difficult for the lender to get its hands on other properties not under its control.
Spreading your lender exposure also means minimising the negative impact that could result should one lender decide to dramatically change its lending policies.
Despite the potential cost savings of having all your loans with one lender, many investors choose to spread their loans because of the increased flexibility and protection. A good mortgage broker can usually find ways ofminimising costs while still utilising different lenders. Ultimately, the choice depends on your overall strategy, risk profile and financial resources, but for property investors looking to build a large portfolio spreading your lenders is the preferred strategy.