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Why Banks Set Priority Amounts On Home Loans · That Home Loan Hub

• 0:10
  SPEAKER_01: Welcome back.
• 0:11
  SPEAKER_01: And if you were wondering what is a priority amount, you should listen up.
• 0:15
  SPEAKER_01: I've got Kunch in a house.
• 0:17
  SPEAKER_01: Hello, Kunch.
• 0:18
  SPEAKER_01: How are you?
• 0:19
  SPEAKER_01: Good.
• 0:19
  SPEAKER_01: So good to see you here.
• 0:20
  SPEAKER_01: This is your first time back in this year.
• 0:23
  SPEAKER_00: I know.
• 0:23
  SPEAKER_00: It's been a wee while.
• 0:24
  SPEAKER_00: It's been a while.
• 0:26
  SPEAKER_00: It feels like a while, but yeah.
• 0:28
  SPEAKER_00: Like this year's already flying by.
• 0:30
  SPEAKER_00: I know we're almost at the end of January.
• 0:32
  SPEAKER_01: What happened?
• 0:33
  SPEAKER_00: Yeah, I know, right?
• 0:35
  SPEAKER_01: So, priority amount.
• 0:37
  SPEAKER_01: Let's talk about that.
• 0:38
  SPEAKER_00: Yeah, I thought we'll talk about priority amounts because we've got, you know, questions popping up, like, you know, what is a priority amount?
• 0:45
  SPEAKER_00: And how is it calculated?
• 0:48
  SPEAKER_00: And why is there a priority amount?
• 0:50
  SPEAKER_01: Especially if you're new to the whole home loan situation, your first-time buyer.
• 0:55
  SPEAKER_01: You have no idea when you're buying a house, and then suddenly you go to see a lawyer and they're talking to you about priority amount.
• 1:02
  SPEAKER_00: Exactly.
• 1:03
  SPEAKER_01: Your brain will be exploding, going, what is priority amount?
• 1:05
  SPEAKER_00: Or like you show up, you because obviously your loan documents get sent to your lawyer when you first buy a home.
• 1:11
  SPEAKER_00: Because the lawyer executes all that for uh uh for you.
• 1:14
  SPEAKER_00: And you show up to the office and you're like, okay, well, my loan is, you know.
• 1:19
  SPEAKER_00: 500k.
• 1:20
  SPEAKER_00: Yeah, 500k.
• 1:21
  SPEAKER_00: Then and priority is 800.
• 1:24
  SPEAKER_00: Yeah, there's a priority amount.
• 1:26
  SPEAKER_00: And then the client says, Well, you're like, but I only borrowed 500.
• 1:30
  SPEAKER_00: Why is there a priority amount?
• 1:32
  SPEAKER_00: What is a priority amount?
• 1:34
  SPEAKER_01: And out of the four main banks, there is one particular bank that loves putting priority amount in their offer of letter, let of offer.
• 1:42
  SPEAKER_01: Oh, interesting.
• 1:43
  SPEAKER_01: And I get those questions every single time when we send out that letter of offer.
• 1:48
  SPEAKER_01: It's just that one particular bank.
• 1:50
  SPEAKER_01: All the other banks usually do it in their loan documents.
• 1:52
  SPEAKER_01: Yes.
• 1:52
  SPEAKER_01: And that's where the lawyer explains all of that.
• 1:55
  SPEAKER_01: But one bank does it in a letter of offer, so we have to explain it.
• 1:59
  SPEAKER_00: Ah, okay.
• 2:00
  SPEAKER_00: Well, at least it prepares the clients for that lawyer's meeting.
• 2:04
  SPEAKER_00: Yes.
• 2:04
  SPEAKER_00: Correct.
• 2:04
  SPEAKER_00: And that obviously saves the clients, you know, some time and fees to their lawyer by not having to ask that question.
• 2:12
  SPEAKER_00: Correct.
• 2:12
  SPEAKER_00: So what is priority amount, Kunch?
• 2:15
  SPEAKER_00: So the priority amount is an amount that the bank sets.
• 2:19
  SPEAKER_00: So it's usually 1.5 times the value of your property.
• 2:24
  SPEAKER_01: Value of your property right now that the bank has in the system.
• 2:27
  SPEAKER_01: So it's nothing to do with the council value, the government value, the registered valuation value, the purchase price, whatever.
• 2:35
  SPEAKER_01: The bank will take it.
• 2:37
  SPEAKER_01: If you're buying a property at the purchase price, that will be the price.
• 2:40
  SPEAKER_01: If registered valuation came back lower than the purchase price, they will use that.
• 2:44
  SPEAKER_01: So then it's times and a half from that value.
• 2:47
  SPEAKER_01: Yeah.
• 2:47
  SPEAKER_01: Why do we need it?
• 2:48
  SPEAKER_01: What's the point of it?
• 2:49
  SPEAKER_00: Well, it's it's usually for the bank, just in case you know something happens, it's for them to recoup the interest fees and things like that.
• 2:59
  SPEAKER_00: But generally that or like if a second mortgage was to take place on your property as well.
• 3:07
  SPEAKER_00: So it's just a little buffer for the bank, but it's not what they're gonna charge you.
• 3:12
  SPEAKER_00: No.
• 3:12
  SPEAKER_01: So in simple terms, when you're borrowing money from the bank, the bank has to tick the box to say, hey, if something goes wrong with this property down the line, we take the first dips on at least the mortgage.
• 3:27
  SPEAKER_01: But if there is, as you say, you know, as the time goes by, people's property prices increase and you go back to reborrow again and again, you can actually reborrow back up to that amount.
• 3:38
  SPEAKER_01: Yes, yeah, without changing anything with your lawyer.
• 3:40
  SPEAKER_01: Yeah.
• 3:41
  SPEAKER_01: So the moment you go above a certain number, then the bank may request your lawyer to increase the priority amount.
• 3:48
  SPEAKER_01: So they're sort of setting up a cap of how much you can go up to in the future.
• 3:53
  unknown: Yeah.
• 3:53
  SPEAKER_01: So we're looking at 10, 15 years down the track.
• 3:56
  SPEAKER_00: Yeah.
• 3:56
  SPEAKER_01: Not right now.
• 3:57
  SPEAKER_01: However, if you decide, as you say in your example of going and taking a second mortgage, if you decided to go to a second-tier lender and take a second mortgage, and the second mortgage might be 100K.
• 4:08
  SPEAKER_01: So suddenly you owe this bank 500 and this bank 100.
• 4:12
  SPEAKER_01: If the mortgage sale were to happen and you only sold your property for 550, then the bank might say, Hey, we want to take what you owe us first plus the fees, whatever is left over can go to the other party.
• 4:24
  SPEAKER_01: So just you need to be aware of these things, not really lose sleep over it.
• 4:30
  SPEAKER_00: No, no, it's it's nothing to lose sleep over.
• 4:33
  SPEAKER_00: And it's actually, I think it's quite a beneficial thing as well.
• 4:37
  SPEAKER_00: As you said, you know, it's a cap to where you can borrow up to.
• 4:40
  SPEAKER_00: So I've seen in my experience, there wasn't enough priority amount in some properties.
• 4:48
  SPEAKER_00: Like, for instance, say you brought something way back and it was, you know, 300k or something like that, and your priority amount was only 500k.
• 4:58
  SPEAKER_00: And then you're like, okay, well, I want to borrow more, and your value of your property is now, you know, doubled since you brought that.
• 5:05
  SPEAKER_00: Your priority amount isn't enough, so then you have to actually get it increased again.
• 5:10
  SPEAKER_00: And you can only do that with your lawyer.
• 5:13
  SPEAKER_00: Yeah.
• 5:13
  SPEAKER_00: So the I I think with it being a bit higher, it's actually quite beneficial.
• 5:19
  SPEAKER_00: And also another thing to be mindful of is if you're building, um, so if you purchase the land, sometimes the priority amount is only one point time 1.5 times the land value, and that's an error that's been made because they haven't factored in how much the bill cost is going to be in the total value of your property.
• 5:40
  SPEAKER_00: The future value.
• 5:41
  SPEAKER_00: The future value of that property.
• 5:43
  SPEAKER_00: So again, if that hadn't been factored in, you've got to go back to your lawyer and get that priority amount increase with that, you know, value of the land and the bill.
• 5:55
  SPEAKER_00: Yep.
• 5:55
  SPEAKER_00: Yeah.
• 5:55
  SPEAKER_01: So awesome.
• 5:56
  SPEAKER_01: I think this has been a really cool, knowledgeable podcast that guys saved us for the future.
• 6:03
  SPEAKER_01: Bookmark it for yourself.
• 6:04
  SPEAKER_01: Yeah.
• 6:05
  SPEAKER_01: That's understanding priority amounts.
• 6:07
  SPEAKER_01: So no stress over it.
• 6:08
  SPEAKER_01: Yep, don't lose sleep over it.
• 6:09
  SPEAKER_01: And if you do want to reach out to us for any other topics you wish to cover, feel free to do so.
• 6:14
  SPEAKER_01: Thank you so much, Kunch.
• 6:15
  SPEAKER_01: Anything else to add?
• 6:16
  SPEAKER_01: No, not for that topic.
• 6:18
  SPEAKER_01: Goodbye.
• 6:19
  SPEAKER_01: Bye.