Pros and Cons of Second and Third Tier Lenders

Dilleen Property Group 2022

During the process of building your investment property portfolio, it is common to encounter difficulties in serviceability with larger banks.

This is when you should consider the pros and cons of second and third tier lenders:

Pros:

Better serviceability

Second and third tier lenders are often more generous when it comes to serviceability numbers compared to larger banks. This is because larger, reputable banks tend to have conservative policies and don’t tend to accomodate if you do not meet their criteria. With second/ third tier lenders, you could look into options such as negative gearing benefits and investment property holding costs to get better servicing numbers.

Flexibility and policy exceptions

Outside lenders are willing to be more flexible and take exceptions to policies depending on the nature of your situation, unlike larger banks which follow a set guideline. For example, if your situation is out of the ordinary but it makes sense to the lender, they may consider going out of their policy and giving you a one-off exception to assist you in your situation, whereas larger lenders would have to stand firm on their rules and policies.

Cons:

Higher costs

Since the regulations of outside lenders are less strict, a premium may have to be paid to counteract for that. Interest rates and fees may also be higher depending on the lender’s evaluation on your situation.

If you require assistance or have inquiries about getting a loan, you can contact our recommended broker Justin Picker.

Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.