Hi,
I am about to start looking for my first investment property and have a finance question.
I have approximately 100k in equity in my PPOR. I am planning to "unlock" this equity so I can use it to fund the deposit to allow me to commence purchasing investment properties.
My mortgage broker has advised I have two options:
1. Access the equity using a line of credit – He advised the line of credit will only allow up to 90% LVR.
2. Access the equity using an equity loan and place the funds immediately into an interest offset account, essentially allowing me access to the funds whenever required. He advised the bank will allow up to 95% LVR for this type of loan.I have been advised the two options are essentially the same, without any disadvantages of either option other than the lower potential LVR for the line of credit. The recommendation from the broker has been the path of the equity loan to potentially allow access to a higher LVR.
The vendor for this transaction will be ANZ as my PPOR mortgage is held with them.
Are there any benefits/pitfalls of either of these options which I should be aware of?
Thanks in advance,
JJ.Line of credit is a facility you set up. So that when you need access to the cash you already have the loan approved and the cash available. You are not being charged interest until you take the cash out of the facility you have previously set up.
Not sure of equity loan but it sounds like you would be paying interest but the offset account would counter act this.
Dont want to have to correct a fellow broker but Anz maximum lend on any security is only 90% LVR and they deduct LMI from the 90% not add it to the loan as per most lenders.
Personally I would go the Line of Credit option but everyone to their own. Just make sure he understand how to structure the loan so that the securities are not croos collateralised.
Be suprised how many brokers have absolutely no idea when it comes to loan structuring.
Richard Taylor | Australia's leading private lender
Thanks for the responses.
Richard, what are your reasons for choosing the Line of Credit over the Equity Loan. What are the differences?
Cheers,
JJJimmyJ
Not a fiancial guy. But , maybe with the line of credit, you can take out only what you want and thus pay for what you need, also as duckster says only pay interest when used.
Are the loans same interest rate and do they both offer offset accounts ? Also same costs of running and setup??JJ
All comes to the tax deductability of the loan interest.
Again without being funny unless your Broker is a Licensed Financial Planner he should not be discussing the merits of an offset account with you.
Richard Taylor | Australia's leading private lender
i agree that the LOC is a better option. By borrowing the money to put into a savings account you run the risk of losing the connect between the borrowing for the investment which comes later and could lose the deductibility of interest. This is especially the case if you have other money in that account and so mix borrowed funds with savings – when you take money out for the investment is it from the savings or from the borrowings?
You will need tax advice for this stuff.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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