Hi Guys
I am interested in knowing if you have been able to use equity in existing PPOR with another lender (e.g Myrate) to fund 1st IP purchase with different lender (e.g CBA) . I am having some difficulty procuring Investment loan for my first IP. My current situation is:Loan Amt left on my PPOR – $193,000
Lender for my Current property – My Rate
Current valuation of existing property as per Residex Report – $325,000Investment property purchase price – $320,000
Possible Weekly Rent return – $370.00My Gross Yearly Income – $66,000
My partner Gross Yearly Income – $18,000
Limit of all Credit Card (1) – $ 5300
No Personal Loan, No car loan.What do you think? Am I able to use equity built on my PPOR (approx $130,000) to fund IP with different lender. CBA is telling me they can use the equity only if both properties are with them. Is this true? What is the way around. I dont want to break with Myrate for my existing property and have both proerties with CBA and also dont want to pay 10% deposit for my IP to CBA. What can I do so that I dont have pay deposit for my IP with CBA?
I am flexible with my choice of lender for this IP. I have chosen CBA as my wife works there and will get staff discount.
Thanks
AmanJust take a LOC out on the PPOR with CBA.
Use the LOC to pay for the deposit and costs of the new property and borrow the rest from another bank.
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
Amsaini,
I think you should be able to set up an LOC with your existing lender (MyRate) to access the equity on your PPOR. This then becomes the deposit for your IP. You can then take out a new loan for your IP with CBA or whoever you like. The interest on the LOC will be tax-deductible, since its purpose is the IP. So a pretty good outcome if you can set it up that way!
Terryw wrote:Just take a LOC out on the PPOR with CBA.Use the LOC to pay for the deposit and costs of the new property and borrow the rest from another bank.
Sorry, I should have written myrate instead of CBA
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
Hi Terry
The IR of LOC with myrate is 7.1% which is not competitive.
Would be better to refinance it into BANK LENDER to get an attractive termA LOC is not really necessary, a simple IO loan would do.
This is why going with a non bank lender is not always ideal!
– difficult to access equity
– other products may not be so cheap
– highish exit fees.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
and their cheapest variable rate is 6.63%.. which you can bet it easily with
Bank lenders…Thanks everybody for the solution. Now the tough decision that I have to make is whether I can trust Myrate to process breakup faster so that I can have both loan with CBA or if I have to stay with MyRate at 7.1% LOC loan.
CBA lender was telling me some lenders take long time (5-6 weeks to process the transfer of loan) which would put me in trouble as I would just have 42 days for loan settlement..
SandraL wrote:Amsaini,I think you should be able to set up an LOC with your existing lender (MyRate) to access the equity on your PPOR. This then becomes the deposit for your IP. You can then take out a new loan for your IP with CBA or whoever you like. The interest on the LOC will be tax-deductible, since its purpose is the IP. So a pretty good outcome if you can set it up that way!
Sandra,
When you say "This then becomes the deposit for your IP." Does this mean my loan amount will be 80% or 90% for the IP. This will defeat the aim of having 100% loan amt for maximum negative gearing benefit? I do have extra cash as deposit as well but I donot want to pay any deposit for maximum benefits."The interest on the LOC will be tax-deductible, since its purpose is the IP." – Does this mean even if I have paid for the deposit on the IP through LOC, I am still able to claim tax benefit of the deposited amount virtually making my loan 100% tax deductible? Please excuse me I have misunderstood it.
Aman,
The best course of action will depend on what you want to achieve longer term. If you just want to purchase 1 IP and no more, you could do it all through CBA. If you want to build a property portfolio, there are more appropriate options to consider.There are 2 ways to purchase another property (assuming you are just using existing equity), the first is to get the existing property revalued and refinance it to the extent you can or need to to set up another loan facility. Most go for a LOC due to flexibility but if you know the $ you need to settle the next purchase, you could go for a IO loan with offset. You then use those funds (or some of them, 10% +) to settle the purchase of the IP and obtain the bulk of the money (80% +) from another lender. This is the preferred course to build a portfolio. It can also allow you a safety net and the ability to debt recycle.
The second option if you just want to purchase 1 IP only is to go with one lender who uses the security of your PPOR to lend you 105% of the value for the purchase of the IP. They cross securitise the two properties. The lenders do not normally allow you to borrow more than just what is needed to purchase the IP. You often 'give' away equity unnecessarily.
As to tax deductibility, the purpose of the funds is the critical component, using a separate LOC secured on your PPOR to help purchase an IP makes the interest cost of that LOC deductible against the rental income of the IP. Effectively you are fully funding the purchase of the IP by debt, just with 2 different lenders.
Good luck
Gregamsaini15 wrote:SandraL wrote:Amsaini,I think you should be able to set up an LOC with your existing lender (MyRate) to access the equity on your PPOR. This then becomes the deposit for your IP. You can then take out a new loan for your IP with CBA or whoever you like. The interest on the LOC will be tax-deductible, since its purpose is the IP. So a pretty good outcome if you can set it up that way!
Sandra,
When you say "This then becomes the deposit for your IP." Does this mean my loan amount will be 80% or 90% for the IP. This will defeat the aim of having 100% loan amt for maximum negative gearing benefit? I do have extra cash as deposit as well but I donot want to pay any deposit for maximum benefits."The interest on the LOC will be tax-deductible, since its purpose is the IP." – Does this mean even if I have paid for the deposit on the IP through LOC, I am still able to claim tax benefit of the deposited amount virtually making my loan 100% tax deductible? Please excuse me I have misunderstood it.
Amsaini,
you take the funds from the new LOC on your PPOR (the LOC will be most likely 80% of your PPOR's valuation minus your existing mortgage, but this depends on your lender) and use that as the deposit for your IP. You borrow the rest from another lender against your IP. So your deposit could be 5-20% depending on the size of the LOC and your new loan will be 80 – 95% accordingly. If you proceed with this scenario, then the entire 100% of the purchase price for your IP will be tax-deductable.I hope this makes it clearer.
Thanks Greg for the detailed explaination. I am going with the IO loan with the offset. Thanks for the confirmation that this arrangement is fully funding the IP purchase.
Thanks Sandra !! Much appreciated.
Just wondering if you the IO loan with the offset with myrate?? or did you go elsewhere
Hi Sammmeee
I changed my existing PPOR loan with MyRate to IO but I have taken new IO loan for my IP with Commonwealth Bank. Thanks
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