Hi there,
I've read a LOT about using equity from your PPOR that has a mortgage, but almost nothing about how it works if you don't have a mortgage.
My partner and I have a PPOR worth around $550 with nothing owing on it (thanks to inheriting). We also purchased an IP in Bendigo about 18 months ago for $335. We had it valued recently at $355 – not quite the cap growth we were wanting/expecting so far, but not worried.
As we are both around 50 and want to do quite a bit more investing before we retire (no older than 60), I'm keen to do some more investing asap so we have less owing by the time we retire. I think we should use the equity in our PPOR to do this, but my partner keeps saying "we're in the fortunate position to own our PPOR, let's not risk it". I keep arguing "yes, we are in a fortunate position, so let's use it to our advantage!"
Can anyone explain a few finer points to me about using your equity in your PPOR that doesn't have any debt please?
1. Would we have to surrender the title to our PPOR?
2. Would the bank/lender want to use our PPOR as collateral?
3. If yes to question 1 and no to question 2, what is the difference?
Any other information or feedback would also be appreciated.
Thanks in advance,
Rustycat.
2. Yes, if you are using a proeprty as security the lender will take a mortgage over it.
2. Yes, the lenders will want to tie you up as much as possible.
Because of your ages you should consider using a SMSF to invest. This will enable future CGs and income to be tax free.
You may be able to set up a LOC and to onlend to your SMSF if you don't have enough funds in it (with careful advice) or you could use the LOC as deposit for future property in you own names or via a trust etc.
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
As Terry has mentioned certainly worth considering buying inside a SMSF dependant on your incomes and level of employer contributions.
You mention that you purchased an IP but you didnt mentioned whether their is a loan secured against it.
If not then i would use the equity in this property to raise a deposit and take out a standalone loan for your new IP.
If there is a loan then is your PPOR being used as security for this or did you put in a cash deposit.
Either way lenders will consider NCCP when assessing the deal due to your age but with the PPOR being owned outright i don't see that being a hurdle with many lenders.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks to both Terryw and Qlds007. Yes, there is a loan secured against the IP (10% cash deposit used – so paying MI unfortunately). I believe the equity in the IP would be about $55K, however it's my understanding that we would only be able to use about 80% of that (?).
Also, forgot to mention, would like the next IP to be CF+ – possibly something in NSW and put a granny flat on it. Have also looked into CF+ in mining towns, but partner VERY adverse to risk and sees that as to risky for her liking.
Will look into SMSF as an option.
If partner very adverse to risk then one option is to set up separate SMSFs and to use your fund to purchase and to select a lender which does not require a personal guarantee. I dont' think you can really get safer than that.
Another option is to use a discretionary trust and to keep your partner out of giving guarantees or going on the loan etc. Even one in your own name. This way if something does go wrong then only yourself would be at risk.
Both owners of the existing house would have to go on the LOC secured over that property however.
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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