I'm in a spot at the moment, i own 1 property with a value of $420,000 and have a locked in loan of $280,000 @ 7.35% with a break out fee of 5.5% until August then it drops back to 4% breakout.
I'm wish to move and keep the current property as a investment with the new place being my ppor.
I spoke to a broker told him the new property will be around $400,000 (house not on the market yet, friend of a friend is selling) whats the best way of doing this and he said to (after speaking with the bank) to borrow the deposit using my current property as security then getting another loan with the deposit for the new house.
If i do this i'll end up with 4 loans running at once (i have a personal loan) which seems to be abit messy to me.
Has anyone got any ideas of a better way to do this?
Am i better of breaking the loan?Thank you.
Get a line of credit loan.
My bank allows up to 5 line of credit accounts. What you do is you apply to the current property bank for a line of credit loan . This bank will do a valuation and multiple this by 80% and subtract the amount still owing to get the maximum you can borrow being $56,000 based on a 420,000 valuation . Once this is done you have an open loan that you can get money from for investment purposes or private purposes . The use in this case would be private as you are using it for a PPOR deposit so no tax deduction is possible on it
Go ask at your bank.You may want to consider opening another line of credit account or adding the the personal loan to the first LOC .
(A LOC would be at a cheaper interest rate than a personal loan) depending on the equity in your house and how much you need for the deposit..Hi Rastuss,
Firstly, you have to decided whether pay 4% to break the current loan fits your purpose. You may not need to brake it to get maximum efficiency out of your situation. However, if you decide to break it would would appear to take about 2 years to recover costs just on pure interest alone.
Secondly, we need to look at why you have personal loan? If this is for a depreciating asset or to repay other debts then we should work how to avoid this situation again. Personal loan debt and credit card debts are designed for profits only for the bank. There are no financial rewards for using these as a consumer. If there is you have been sold a lie. Therefore, these should be enclosed the the next transaction to reduce any additional fees you’re paying.
Thirdly, to purchase a $400,000 in Australia, you may need up to $420,000 to complete the transaction due to government costs etc. Therefore I only see a need for 2 or 3 loans.
The loans are broken up in regards to purpose, as this is how the ATO treats them, on the purpose of the loan not on which security it is held on. A good tax agent will be able to provide more clarity on this.
Similar to Duckster I see;
Loans of $280,000 fixed (investment debt)
New loans of say $360,000 and $98,000 to cover current personal loans and shortfall (personal debts)This assume your whole portfolio is geared at an LVR of 90%, of which there maybe restrictions to do this.
I think it is okay to keep the loan fixed for 3 reasons;
1) accept the consequences of fixing
2) only if your current lender enables further equity to be withdrawn (which we can look into)
3) you can manage with cashflow, realise you will have a larger tax deductibility interest component in the proceeding tax yearsExpectation is the focus to payoff the $98,000 the quickest as you have also wrapped into personal loan debt and you don’t want to drag it over 30 years.
Otherwise, if you only want 2 loans, you will probably need to refinance, and use a lender who will cross collateralise and enable future access to credit. This feature is commonly name umbrella credit. This is what is commonly done for high end investors and the high cashflow individuals like doctors, as it voids the end to keep reproducing financials every time a new borrowing is required. Please note this can tie you up with one lender when you try to untangle the association.
Please let me know if you require the assistance implement any of these solutions in a timely matter.
Rastuss,
You should avoid cross collateralising where possible, and it looks like you probably can in this case.
Pull out more money from your existing property as a separate split, then borrow against the second property to make up the difference (or more).
4 loans should not really be that confusing, as long as all of your money goes into one transaction account (offset account if possible). What happens is that you other loans are interest only and the interest is automatically deducted from your transaction account. This way, you won't miss a repayment whilst removing the headaches!
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