Forum Replies Created
- Vincent8 wrote:Hi all,
Many thanks for your helpful replies – I appreciate it. I did double check this with my mortgage broker today and you are all right, he was trying to cross collateralise.
I told him I didn't want this, so he will get back to me with other products where this can be avoided.
However, he did advise that I may lose out in some tax benefits….
Incorrect
Vincent8 wrote:…and also may end up having to pay mortgage insurance if I do not cross collateralise….And incorrect as well.
Standard investment loan structuring 101.
Cheers
Tom
Like Terry I don't charge a fee, but I do know of some brokers out there who will charge for pre-approvals (who will then waive the fee if in the end you take out the loan through them).
As Terry said the way your partner is treated (non-resident, temp visa, etc) will affect whether approval from FIRB is needed, type of property you can buy and the maximum LVR that will be allowed by lenders.
Cheers
Tom
Vincent8 wrote:Many thanks for your advice, Terry.These were his exact words, if your good self or any other posters who are familiar with this topic can translate for me in laymens' terms:
"How it would work you would keep your property at $200k and continue to pay that P&I and try and pay that down as you are doing, because there are no taxable benefits involved with your principle place of residence.
Then you would borrow the full amount plus stamp and settlement costs as they are tax deductions on your investment property.
If you bought for $300,000 for example you would borrow $315,000ish. The loans would be $200,000 plus $315,000 : Total Approx. $515,000. Values Approx. : $815,000 Loan to value ratio of approximately 63%, so well out of mortgage insurance territory."
Does this sound like he was trying to set up finance so it would cross-collateralise, or perhaps it isn't clear from his wording?
Many thanks
Yep, he is trying to cross-collaterise. Basically your broker is lazy and wants to only write the one loan instead of structuring it properly. You can avoid mortgage insurance by doing separate security loans as well so he doesn't have an excuse there.
In a nutshell, the interest on your PPOR loan can't be claimed come tax time while the interest on the IP can. Therefore to maximise your financials on your tax return, it's beneficial to pay down your PPOR loan rather than your IP loan (as you're going to pay interest no matter what so you might as well pay a higher ratio on your deductible IP loan). This means leaving your IP loan borrowings of $315K at interest only and your $200K PPOR loan borrowings at P&I (as well as directing excess funds to an offset account linked to it).
However the way that your broker has it structured is not the way to proceed. Terryw has suggested one way it would be done, there are others, all better than their proposal.
Cheers
Tom
You would need to check the relevant SRO in your state for eligibility requirements Mikal, however I would hazard to say the answer is yes.
I know in Victoria as long as the investment property was bought after July 2000 and is solely an investment property (i.e. never lived in by the title holder), then they are eligible for future FHOG. There is a clause to that nature in the eligibility requirements here and as the eligibility requirements are pretty much standard across the states I would say it applies to wherever you are from.
However check with your SRO to make sure.
Cheers
Tom
Freckle wrote:PLC wrote:Ah the good old doomsdayers, where would we be without them the last 10 or so years?He's in good company then. Every financial player worth his salt is saying the same things. Humans like to stay positive and talk up their chances even in the face of adversity. The problem with that trait is that it often means we hang around too long for our own good. There is a theory that crowd think has a way of generating the most correct decisions but what is often ignored by the promoters of this theory is that it lends itself equally to group tragedy – think lemmings.
Just because Dent is a vocal supporter of a crash prediction does not mean he is wrong. This current global financial crises was seen years even decades in advance. What has always been difficult if not impossible to predict has been timing and severity. A quote from that article seems extremely reasonable to me and many others who choose to look ahead with a more realistic view.
"Australia is probably the best place in the world to survive this, but we do think Australia will not escape as well as it did from the last crisis (in 2008),'' Mr Dent said.
Dent isn't predicting doom and gloom for Australia but warning that deteriorating global financial conditions will adversly affect Australia to some extent or other. There are many who will think that if they just shrug this off as another alarmist prediction they will be alright. In other words a head in the sand approach will see them through.
They will be the least prepared, the worst affected and the most surprised when financial distress comes knocking on their door.
He says we're the best place in the world to survive a crisis yet predicts falls of 30-50%. If that isn't doom and gloom then what is? If he is indeed correct on his supposition then house prices will be the last thing on the mind of the average Joe as they won't have a house to live in due to being turfed out and living on the street.
Ever since the turn of this century, someone or another has predicted a bubble in the Australian market with dramatic consequences. Those prospective homebuyers/investors who listened to them and held off purchasing due to the fear of declining house prices, would have missed out on huge opportunities to get ahead in life.
Times have changed since there was the sole breadwinner of the family with the wife staying home to look after the children.
Of course prices may retreat, they have before and I have no doubt they will again. But to heed the word of those whose predictions are in the self interest of whatever they are promoting at the current time, I will take with a grain of salt. If he is correct, then kudos to him, he finally hit that bullseye on the dartboard.
Freckle wrote:PLC wrote:As Colin mentioned, its about supply and demand.A simplistic and inaccurate assumption at best.
How so? It's a fundamental concept of price determination in economics.
Ah the good old doomsdayers, where would we be without them the last 10 or so years?
Harry must be in town to promote another book or something. He predicted the same property crash in 2012. I suppose if you say it enough times it might come true eventually (dartboard mentality).
He also predicted a year before the GFC that the American Dow would hit 40,000 by the end of the decade. That worked out well.
Property may or may not decline in the near to mid term, but I wouldn't be basing it on speculation from any economists. The Bureau of Meteorology has better strike rates in forecasting the weather 14 days in advance than them.
As Colin mentioned, its about supply and demand.
Cheers
Tom
I noticed you mentioned gift as part of your deposit. What is the size of the gift compared to the remaining deposit, as most lenders require 5% in genuine savings over 3 months when borrowing above 85% LVR?
Cheers
Tom
Personally I think it is a nice pocket. Close to suburbs such as Yarraville, Williamstown, Altona Nth without their price tags, and not that far from the city.
Though I'm not sure what effect the new housing developments on the old Don Smallgoods site will have.
Cheers
Tom
Majic wrote:I may be clutching at straws here but here is a question.
Can I redraw the money available in the loan in order to improve the situation ? Does it help if we do this while I am still living in the house as my PPOR. ?
Does the structure of the loan matter when doing this ? In my case, I have the loan split three ways. Two of these are (worth 150K) are not drawn down.
Thanks in advance.
M
As Jamie mentioned, unless the redraw is for investment purposes then the money won't be deductible. If it was that easy everyone would try to do what you are suggesting.
Assuming the $430K was from the original loan and no funds were ever redrawn out of it for personal purposes, the interest on that would be the maximum that could be claimed. That is unless you do sell to a spouse, etc.
Would also be advisable to change the loan into interest only as well if it isn't already.
Cheers
Tom
mattliasiian wrote:Thanks Guys I have a broker appointed and ready to throw hundred of questions, Do you guys know as of today how much FHOG is in victoria for already established housing not newly built but existing property is ???Thanks
FHOG no longer available for existing properties in Victoria. Rules changed as of 1st July 2013.
Cheers
Tom
mattliasiian wrote:Thanks for all the advice guys its great!!!I am thinking now maybe to purchase out in the suburbs something decent between $200,000 – $250,000
something relatively good location with 2 bedroom house. I want to live there maybe 2 – 5 years and so I can do my own business and continue to build capital and save because the mortgage repayments won't be so high and than once I have saved enough I can purchase another property and rent the 1st one out.
what do you guys think?
thanks
If you take this information to a bank, your most likely response will be a blank stare followed by a comment to the tune of "we can give you our popular P&I loan package" without giving reasons why it benefits your situation.
As others have mentioned, get in contact with a decent mortgage broker who will able to structure your loan to give you the best advantage going forward.
Cheers
Tom
Qlds007 wrote:Anz allow 5 separate loan splits under a Breakfree package so no reason why they will not allow a further split.If there is an issue merely increase one of your existing Investment loan splits.
Richard, is it still a maximum of 5 loan splits? I seem to recollect that ANZ changed to unlimited loan accounts under the one breakfree package recently?
Cheers
Tom
As others have mentioned, banks wont accept valuations you went and received on your own accord.
However you will find that in almost all cases for established properties any valuation that a lender does for an application will come back at purchase price (construction and off the plan are different beasts). Obviously there are exceptions to the rule but if you bought a property in a city metropolitan area you should be very confident in the valuation meeting purchase price.
Cheers
Tom
I'm with AFG and started out similar to Colin as my mentor who was a friend of mine was with them, and was willing to help me enormously while I was finding my feet.
Agree that the FLEX software isn't the easiest to use and my biggest gripe is that not all the information you enter transposes across to the specific lenders application so you need to enter information twice.
They do however have a great support system with their relatively recent Broker and Knowledge HQ systems.
Cheers
Tom
In that case you need to do as Colin suggested and IO with linked offset.
There are two ways to make money with investment properties. First is with the rental income which should increase every year leading to a higher yield. Secondly is with capital gain. It's all good and well buying a mid $200K property because it's cheap, but if you're not to going to receive a decent foreseeable income and have decent gain over the long term, then all that will happen is that you will be holding the property at a loss so you might as well not have had it in the first place.
Cheers,
Tom
If you were to generalize with Melbourne then the Eastern and South Eastern suburbs are more expensive than the North and West where you could get more bang for your buck. Whether that translates into better capital gain down the track is another thing.
As Jac mentions, within the CBD or surrounding suburbs for your kind of budget an apartment will be the best you could do. In Richmond you might get a 1 bedroom for that price, on the other side of town in Kensington/Ascot Vale you might get a 2 bedroom.
You have made a decent start with the savings, just need to make sure that you structure the loan properly when you buy to take into account your future goals.
Cheers
Tom
jate wrote:Terryw wrote:Hope your broker is not giving tax advice.Not really, but he was explaining how he thought was best to restructure my loans/accounts I had.
He did make some comments regarding not to use my money directly to pay for expenses from my PPOR Offset account for Investment purposes directly as it wouldn't then be tax deductible. Then gave me the advice to use all the life savings I have been parking there to pay down my loan and then take out the equity via a separate LOC account which I can then use soley for investment purposes. Seemed to make sense.
If the purpose was to pull equity for investment purposes then this is viable.
jate wrote:Terryw wrote:All rent and income should probably be going in the offset account. Do you have 2 LOCs? If so, Any reason?Yes to minimise the non deductability I would agree with you, but if the PPOR offset account gets mixed with my income, rental property income, wife's salary plus everything, it just gets messy (for us anyway). Every month my wife and I are just diligently transfer a lump sum of whatever we don't need from our own transaction accounts into there.
Have to agree with Terry on this one. It may seem messy but it may save you thousands over time by having all in the offset account. CBA now have a transactional offset available.
Jamie M wrote:Buying off the plan is rarely a good idea.You generally pay a premium for them. For that reason, valuations can come in low – and if you don't have a large deposit you may find yourself in a position where you can't obtain finance meaning you'll forfeit your deposit (and possibly more).
Cheers
Jamie
Valuations are the biggest issue with buying off the plan. In a booming economy where the market is going gangbusters you won't lose out and shouldn't have any issues, but when the market is topsy turvy your predicted "great buy" can in fact turn sour.
Then you have the issue of where you are at financially closer to settlement which can be years down the track. If you say lose your job and are out of work at that time, you won't find a lender to take you on for the loan and therefore would forfeit your deposit and maybe more costs depending on the situation.
These are risks the OP needs to contemplate before diving in.
Cheers
Tom
Terryw wrote:jate wrote:Would anyone ever use a Line of Credit to pay off monthly loan repayment interests instead of taking it out of a normal transaction/savings/offset account? or will the banks somehow not really allowed because it too is 'borrowed' funds?For example:
Property A – Loan – Monthly interest charges $111.11
Property A – LOC – $100,000 limit available
Property B – Loan – Monthly interest charges $222.22
Property C – Loan – Monthly interest charges $333.33
Therefore the LOC against property A with the high limit is treated as the "master" account where we normally pay for the utilities, bills, etc. can also be used to pay the Loan Interest repayments on Property A, B and C's loans? or would people normally just treat each one separate and use a standard transaction/savings/offset account to make payments to all 4 accounts directly?
Of course, keeping in mind trying to maximise deductibility and all that too.
Yes. But this should only be done after seeking tax advice and probably obtaining a private ruling from the ATO. Interest on the LOC may not be deductible depending on your reasoning.
Terry, isn't this type of structure frowned upon by the ATO? Was there a ruling recently on something similar to this?
Or is it only if PPOR debt is involved as well as investment debt that the ATO don't like it?
Cheers
Tom
You will find that the interest for November was recorded on the first business day of the month of December which was the 2nd so it has included one extra day.
Redraw and offset are totally different things and are used strategically in different ways. If you ever intend having a long term view of renting out the property down the track after living in it, then you really do need an offset as your current setup will lose out later on.
Cheers
Tom
