Broker guide
Portfolio Loans: Security, Servicing and Release
A portfolio loan can change valuation, debt allocation and release conditions across properties. Check the facility before adding or selling security.
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A portfolio loan can organise borrowing across several properties, but the facility’s security documents decide which debts each property supports. Compare repayment capacity across the whole borrower position and work out what happens when a property is sold or refinanced. Separate loan accounts alone don’t establish separate security.
Identify the Portfolio Facility
Identify whether the enquiry concerns a named portfolio product, loans sharing property security or a lender assessing several standalone mortgages together. The phrase “multiple property mortgage” doesn’t tell you which arrangement your client has.
Bank of Melbourne’s historical Portfolio Loan illustrates a named product. Its borrowing brochure describes a line of credit with an overall limit and separate sub-accounts.
The bank’s existing-loan rates page identifies Portfolio Loan as unavailable for new applications. Use the existing borrower’s agreement to assess a variation or exit.
Portfolio assessment is broader than that product name. A lender can assess the borrower’s rental properties and debts together while taking separate security for each loan. Shared security is a separate contractual feature that needs its own review.
In US lending, “held in portfolio” describes a lender retaining a loan rather than selling it. The Consumer Financial Protection Bureau’s mortgage rule uses that meaning. It doesn’t establish eligibility rules for an Australian investor with several properties.
Start with the signed facility agreement and each current loan statement. Match borrowers and guarantors to the mortgage documents. Record whether the intended change concerns a credit limit, an account or a property held as security.
Value Securities and Allocate Debt
Calculate the loan-to-value ratio (LVR) using the debt and security values that belong to the arrangement being assessed. A portfolio average can conceal a weak individual property or a restriction on releasing security.
For a standalone loan, divide its debt by the accepted value of the property securing it. For a facility secured by several properties, calculate aggregate LVR using the relevant facility debt and the total accepted security value. Retain property-level figures so the lender can apply any separate security restrictions.
For example, consider a hypothetical portfolio with two properties. Property A’s $600,000 allocated debt against an $800,000 value gives 75%. For Property B, $440,000 against $600,000 gives about 73.3%.
The total debt is $1,040,000 against $1,400,000 of property value, giving an aggregate LVR of about 74.3%. Those calculations describe the entered figures. An internal allocation doesn’t limit a mortgage or guarantee unless the signed documents give it that effect.
Record the following separately in the file:
- Current balances and approved limits, including unused amounts that remain available to draw.
- Each property’s lender-accepted valuation and any restrictions on its use as security.
- The debt secured by each mortgage, including any obligations extending beyond one account.
- Each guarantee’s scope and the documents required to vary or release it.
A sub-account is an accounting division within a facility. It doesn’t by itself remove a property from shared security or release a borrower’s guarantee. Bank of Melbourne’s historical brochure also describes guarantee obligations for portfolio borrowers who aren’t holders of a particular sub-account.
Ask for the lender’s assessment basis where the facility balance is below its approved limit. Using the drawn balance alone can overstate available equity if the lender assesses exposure against a larger limit.
Assess Income and Concentration
Assess income and commitments across the borrower’s entire property position, including loans that will remain with other lenders. Property equity and repayment capacity answer different questions.
The Australian Prudential Regulation Authority (APRA) discusses rental-income adjustments and mortgage risk in APG 223 Residential Mortgage Lending. The guidance informs bank risk management. The proposed lender’s policy and assessment determine the income accepted in a particular application.
Reconcile leases and rental statements to the properties in the security schedule. Separate actual rent from an estimate for a vacant or newly purchased property. Apply the lender’s accepted rental-income amount and record how property expenses enter its servicing calculation.
List every existing loan with its limit, repayment type and remaining term. For interest-only debt, identify when principal repayments begin. Include personal commitments and guarantees that the lender requires in its assessment, with supporting statements for the existing debts.
Avoid counting the same rent twice when income documents already include it. Equally, don’t omit a mortgage because another lender holds the security. Reconcile the servicing worksheet to the client’s verified income and debt records before comparing lenders.
Concentration means several exposures can suffer from the same event. Two properties dependent on one local employer can lose tenants together. Several apartments in one development can share a resale risk even when their loan accounts are separate.
Identify common locations, property types and tenant dependencies in the file. Ask how the proposed lender treats its total exposure to the borrower and those securities. A low aggregate LVR doesn’t remove a servicing shortfall or establish acceptance of concentrated security.
Add, Refinance or Release a Property
Adding or removing a property changes the lender’s security position, even when the borrower wants to keep the same account structure. Obtain a decision on the proposed change before relying on a loan allocation or expected sale surplus.
| Proposed change | Security assessment | Income and debt assessment |
|---|---|---|
| Add a property | Acceptance of the new property and mortgage arrangement | Capacity to service extra debt after accepted rent and expenses |
| Refinance one property | Security or repayment the outgoing lender requires to release the title | Existing commitments that remain after settlement |
| Sell a property | Repayment and limit reduction required for release | Repayment capacity after the property leaves the portfolio |
| Substitute security | Replacement property eligibility and accepted valuation | Separate credit approval for any required loan increase |
Return to the hypothetical portfolio. Suppose Property B is sold and the remaining Property A is revalued at $700,000. Assume, solely for this example, that the lender requires remaining debt to be no more than 80% of that value.
The remaining debt ceiling is $560,000. Starting from $1,040,000, the borrower would need a $480,000 reduction to meet that assumed security test, before fees or other conditions. That exceeds the $440,000 internally allocated to Property B.
The example shows why an allocated loan balance doesn’t settle a release request. The lender’s accepted remaining value and release terms determine the required reduction. A servicing reassessment or guarantee condition can still affect the result after that calculation passes.
Bank of Melbourne’s Portfolio Loan variation form distinguishes closing sub-accounts from reducing or transferring portfolio limits. All portfolio borrowers must sign the form. Treat that account variation separately from the bank’s mortgage and security release process.
For eligible loans, the bank’s portability guidance requires an acceptable replacement property and a security-substitution application. It describes a like-for-like substitution using equal or greater property value. That general guidance doesn’t establish that a particular legacy Portfolio Loan qualifies.
Obtain written release conditions for the actual facility. Reconcile the required payment, remaining limits and security documents with the settlement instructions. Only then calculate how much cash your client can retain or apply to the next purchase.
