Hi everyone,
First time poster (long-time lurker).
Interested in people’s advice in moving forward onto the next property.
My situation is:
PPOR: Sydney’s Inner-west, 2-bedder apartment. Recent valuation of $700k. $275k owing.
1st investment property (50/50 split with partner): Mosman, 2-bedder apartment. Purchased late last year for $795k.Now here comes the good part (drum roll):
Properties are cross-collateralised.
This was an emotional situation as the Mosman property was in the family and i wanted to keep it at all costs. I have no intention of selling either property.
My questions are:
Would it be worthwhile un-cross-collateralising considering i have no desire to sell either?
Given the equity still in my PPOR would i be able to access it again?Any thoughts will be most welcomed.
Cheers!
You don’t mention the equity in the Mosman property.
Thanks for the reply.
Equity in Mosman is almost zero. Paid 795k, probably worth 800-810k. I just had it painted and stuck a tenant in.
Hi Bond
If you intend to purchase again I would certainly uncross the loans and start afresh in order to ensure you can access the equity for a future deposit etc.
There are very situations where crossing your loans makes sense.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks very much for your time Richard.
Well, everyone needs to learn a lesson at some time! i’ll never cross-coll again…
I think i assumed i could still draw equity on the PPOR and leave both properties crossed, then take that equity into an independent loan.
I’m guessing that to uncross would either require a wait until the equity builds up to an acceptable level, or a re-structuring/re-drawing of the loan involving a split, etc.
In any case, i should probably see what my broker has to say.
Thanks!
Hi Bond
Yes definitely suggest you get them restructured now.
I can’t believe your broker didn’t point out the negatives when you did the last loan.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
If you are considering re-financing I suggest you look at EasyStreet – they are doing 3.99% investment loan. The lower the rates the quicker you can pump extra cash into you PPR. I don’t work for them I’m in the middle of refinancing with them now.
Good luck. Don’t let that be your last purchase.
Thanks Worm. 3.99% sounds great.
Just some more musings which were running through my head last night…
It has been immensely helpful for me in scrolling through the forums to see some real world examples, and hopefully as i progress i can also add to the knowledge bank with my experiences regarding uncrossing loans.
However, i’m putting forward this situation, hopefully helpful to further unpack cross-coll loans using my situation.
Here is the situation again:
Property A: PPOR
Est. Value: 700,000
Outstanding: 275,000
LVR: 39.25%Property B (crossed with A): Investment 1
Est. Value: 800,000
Outstanding: 800,000
LVR: 100%Now i’m all for uncrossing, this is just a hypothetical.
From the bank’s perspective:
Property A & B:
Est. Value: 1,500,000
Outstanding: 1,075,000
Combined LVR: 71.67%Therefore, if $100,000 (random figure) was split and removed from Property A, the value of the outstanding amount would still fall under 80% LVR.
Property A & B:
Est. Value: 1,500,000
Outstanding: 1,175,000
Combined LVR: 78.33%In everyone’s experience would this be a realistic outcome? that is, would lenders be happy with this? (assuming serviceability, etc. is all OK).
I’m all for uncrossing, but that might affect the 50:50 spilt of Property B. My partner has her own investment property too and she is happy with the present situation, but not against uncrossing..
Anyway, any advice/comments/thoughts/etc. always appreciated!
Hi Bond,
If you were to split the loans and uncross the properties offered as security, the scenario might look this way (to avoid LMI on property B)
Property A
Value – $700,000
Equity Redraw – $200,000
New Loan Value – $475,000
New LVR – 67.86%Property B
Value – $800,000
Deposit from Equity Redraw – $160,000
New Loan Value – $640,000
New LVR – 80%You would have an extra $40,000 set side for any valuation shortfalls in property B so you could get your loan down to 80% LVR or below to avoid LMI. That being the case, the total property value is still $1.5 million and the total loans are $1,115,000 giving you a 74.33% LVR across the portfolio with a spare $40,000 in cash available for any unforeseen circumstances or simply put it back into property A’s loan (offset account if you can set one up) to reduce the loan to $435,000.
Of course the equity you draw from property A for use as a deposit in property B will be a tax deductible expense (interest incurred on the money used). Ultimately you want to put as much money into property A and reduce the debt as fast as possible as the interest being incurred on the non-investment loan is not tax deductible.
Dave.
Dave Ward | Geronimo Finance
http://www.geronimofinance.com.au
Email Me | Phone MeProperty Investor, Property Investment Expert & Advisor, Finance Expert & Strategist
Yes uncross them now while you can. Its like taking out insurance – you only need it when you need it but you won’t know when you need it.
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
Thanks everyone.
Dave, great to see it laid out in a real world example.
Terry, thanks.
Stay tuned and i’ll update as i progress…
Hi Bond,
Welcome to this place – it is good to see you already drawing on the collective knowledge of this place, and it sounds like it is going well for you. Some good answers there from those who know.I’d like to add a bit too – and that is simply this – it could be possible to borrow up to 90% on your Mossman IP. LMI would come into it, and it might be worth maximising the loan to 88% (talk to your Broker). My point is simply that all costs of this property are in “Tax deductible space” – so keeping its costs higher could make sense, while keeping what’s owing on your PPOR lower.
A “warts’n’all” look at your finances by a good Mortgage Broker would be advisable though before taking action. There are lots of little twists and turns – and your situation will help to dictate which twists you utilise.
Benny
Thanks Benny, some interesting options there i can look into. Stay tuned for the next update.
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