Brett Alegre-WoodChairman, YPC Group
Hey guys,
I have now been working with a number of my clients for over 3 years. In this time we have seen a massive change in the market, mortgages, property values and importantly -- interest rates.
So what 'really' happens when the 2 year's cashflow is up?
As part of the portfolio management service we offer, l conduct a regular review of my clients' portfolios. We look at such things as growth, strategy, cashflow and mortgages. One of my clients bought 8 properties through me in late 2004 and early 2005. Now 2 years on, he is getting low on his 2 year cashflow provision account and needs to top up his funds.
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We booked a time to sit down and speak and he bought in all his latest mortgage statements.
Here's what his portfolio looks like:
Property 1 - Value Â?420k to Â?495k
Property 2 & 3 - Value Â?165k same as early 2005
Property 4 & 5 - Value Â?250k to Â?280k
Property 6 - Value Â?185k to Â?175k
Property 7 - Value Â?240k to Â?250k
Property 8 - Value Â?375k to Â?450k
Total portfolio value was Â?2,050,000 and it's now worth Â?2,260,000.
We had a chat about goals and I ran some numbers from his mortgage statements. His biggest problem was clearly cashflow, it was costing him around Â?4500 per month to cashflow the portfolio (including his home mortgage).
He had made a simple and common mistake that is so easy to make.
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The standard variable trap
You see, last time we met 7 months ago he was supposed to follow through on some mortgage reviews. This never happened and consequently, a number of his mortgages moved from the headline or discounted rates of the first two years to the extortionate rate, or the standard variable. Look at a mortgage statement and you will see the rate that you are paying now and the rate that it will change to automatically once you are out of your discounted or tracker period. Usually, it's is considerably higher than you will want to pay.
So six of his properties had moved to 6.99%, a massive jump in interest and a frightening jump in his monthly repayments. Together we called his lender and after a mortgage review and running a huge amount of numbers through the calculator we decided on the products we would go with.
He decided to refinance his Property 1 worth Â?495k. He decided an 80% mortgage at an interest rate of 4.69% was best because it dropped the interest rate by 0.2%. This allowed him to take out Â?56k which would immediately fully cashflow his entire portfolio for a further 2 years or more.
Now, most important outcome for him was that his monthly cashflow requirements dropped from Â?4500 down to around Â?2550 -- a massive monthly difference Â?1950. I'm sure you'll agree this would make a huge difference to both your cashflow and emotional state.
My point is simple. Are all of your mortgages at the best rate they could be? It's worth checking out!
Whilst we are not regulated under the Financial Services Authority for mortgages I am happy to show you how I work the sums out in deciding what each product will cost or we are happy to recommend our broker who can talk about all the products available on the market.
Live with passion,
Brett Wood
PS. Simon, Mike & myself are all presently completing the CeMap course for mortgages.
PPS. Now you may be saying why would he let the interest rate jump like that? Surely he would have done something about it before then? Of course I agree, but it's amazing how life keeps us busy with 'other' things. The lesson is that you need to keep a close eye on these things. Ezytrac, my portfolio management software is great for tracking these things. :)
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