Hi all! I’m a newbie here and my husband and I have just made an offer to buy 1st IP. Our PPOR is valued at 380K and we owe 275K. The IP has also been valued by the bank at its purchase price of 190K. We have around 30K available for deposit which sits on our offset account at the moment. Our broker has arranged for cross coll between the 2 properties bec she said that we won’t have to pay LMI or at least very small amount and we still have equity as we are only borrowing 80% LVR. I am a bit confused at the pros and cons of this deal. Please help, is there a better option?
Hi Ruffa
I hate to say the usually reason why a broker suggest this is because they dont understand how to properly structure an investment loan.
You certainly wouldnt in your position corss collateralise the 2 securities unless you wish to invite trouble down the track.
The way you would structure the loan is to take a investment line of credit secured against your PPOR and use this to fund the 20% deposit and acqusition costs.
The separately you would take out a standalone 80% interest only loan secured against the the IP only.
Once the IP increased in value you would raise the loan to 80% of the new valuation and look to pay down the LOC.
Eventually the total loan would be secured against the IP and nothing against your PPOR.
This will save you anquish in the future and protect your principal place of residence.
Brokers who suggest otherwise really make me wonder whether they have any investment lending experience.
Richard Taylor | Australia's leading private lender
Thanks Richard! Your response made it all clear to me now. I have another broker who suggested a standalone for the IP and doing exactly what you said. Although the 1st broker has invested so much time on us already and I don’t know what to tell her now, I think I’ll go for the other broker who I think is giving us a better deal. I’m just gonna send her a nice bottle of wine for her efforts! Thanks also for the residex reports you sent me for the melton and csprings properties. Do you also do business in melbourne?
Cheers!
Hi there
Yes i ahave dozens of forum members in Melbourne and Victoria.
To be honest you dont need to reward her for incorrect information. Brokers do this all the time and i have had dozens of clients where we have provided them with all the structured advice and then they have gone elsewhere.
Unfortunately just facts of life in the industry.
Richard Taylor | Australia's leading private lender
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