Forum Replies Created
Thanks Terry!
Is there no way for me to setup a company and be the guarantor instead of the borrower once I’ve maxed out? Is the only choice to sell my IPs?
Do low doc loans still take into account consistent income? I’ve currently reached my borrowing cap by burrowing $650k (the full value of the property) for an IP purchase and I heard it’s possible to purchase more property through low doc loans as long as a 20% deposit is being put down. Is this possible?
Yeah I get that but will the banks view that as a $500k loan total for serviceability? $130k loan for deposit/stamp duty and $370k loan to secure the property? In that case burrowing the full amount being $500k and not putting a deposit down will have no difference on serviceability.
Won’t that drastically increase the monthly repayments though?
What if the deposit is being supplied by an equity home loan? For a $500k property for eg, a home equity loan of $130k is used to settle the deposit, stamp duty and associated closing costs.
Hey Terry,
If you put down a deposit (5/10/20%) for an investment property instead of burrowing the full amount, are lenders more willing to let you burrow more for IP purchases?
Hey Terry,
Thanks for the information. In regard to your last point, what would be the possible ways of extending it?
Hey Terry,
I just wanted to clarify a few things if that’s alright (I talk in a discretionary trust sense)
a) When you say to carefully select the director of the trust, should it be the personal with the highest annual income? What are the other important factors to consider?
b) What do you mean when you say ‘avoid using certain lenders’?
c) When you say ‘once borrowing cap reached, then set up a new company to either act in its own right or as trustee for a different trust’, won’t lenders for the 2nd trust see that the director/s of the first trust (director/s would be the same for the trusts) have given personal guarantees for the assets held in the first trust? I thought guarantees are essentially looked at as personal borrowings for serviceability?
Lastly, if you have maxed out your personal burrowing capacity by purchasing real estate, will establishing a trust and having a company act as trustee still allow you to burrow more since it’s the company’s debt and you’re not personally liable? If so, how is the borrowing cap decided?
I know this is a handful but I’d really appreciate it. Grasping this whole trust concept has been a trip. Even after reading a book on it I’m puzzled.
It seems that most banks only provide an offset account if the investment loan securing the property (interest only in my case) is on variable interest and not fixed. Variable interest rate is higher than fixed which increases the monthly repayments and makes this strategy less appealing. Is it possible to have an offset account linked to a fixed interest only investment loan?
In this case, is there a difference between an equity loan and a term loan? Would an equity loan work as well as term loan in this situation?
Yes so in the example above, I pay down the entire $160k mortgage and then reborrow than same amount via a LOC to invest in stocks. Not sure why you say it wouldn’t make sense to use a LOC. Is it because of the high interest rate? What do you mean when say ‘usually using the same loan’?
What do you mean when you say existing loan? I thought tax deductibility can only be achieved on debt used to secure income producing assets. Can you clarify this?
Hi Mr Taylor,
Thanks for your reply, you were indeed correct! I appreciate the advice.
Cheers,
Hi Mr Taylor,
I was told before that between two lenders, the loan amount can vary as much as $300k between two lenders based off the same information (income, credit score, debt etc) Is this not true?
Cheers
Definitely, thanks. When you said ‘If you pay more than the interest you will be reducing the loan amount – but might be able to access it for redraw.’, do you mean to extend the LOC? or establish a separate redraw facility? Not sure what you mean by redraw.
So let’s say I get a $300k LOC and I’ve made all my interest payments and now it’s the end of the loan term and it’s time to pay back the $300k. Wouldn’t I need an additional loan to pay that off? I don’t have $300k of cash. You said earlier I wouldn’t need a new loan as long as I paid a little more than the interest payment required but I’m not seeing how that small extra payment covers the principal.
So if you just pay one more cent than the interest repayment on the amount drawn out of the LOC, that’s the way to repay it? I thought you had to repay the whole amount drawn out. For eg: If you take out a $300k LOC, don’t you have to pay back the whole $300k to the bank? You mentioned that ‘generally you will only need to pay the interest’ but don’t you have to repay the whole $300k principal amount? Could you show me what I’m missing here.
So for example, let’s say I take out a $300k LOC and I draw out $2k monthly. Once I first draw out $2k, I need to begin paying interest on the money that I draw out. When you say ‘if you want to repay the LOC pay more than the interest’, how much more do I have to pay?
I’m based in Australia so I’m simply referring to a LOC that’s being burrowed against the equity of the home.
I understand that once an amount has been used up on the LOC, interest is paid on the amount that’s been consumed right? What I mean is once the LOC is drained (all of the money as been used up), how is it repaid? Do I need to get another loan from the bank to pay it off? I’m not sure how the repayment of the LOC works once it’s been depleted.
If I understand you correctly, the company is the trustee of the trust and I am the director of the company. Therefore, I have full control of my assets but the liabilities fall under the company’s name and not my own, therefore not hampering my personal liabilities.
About the taxable loss, what I mean is that the repayments don’t come out of your savings account but instead the LOC funds them so when a bank is calculating your serviceability, those monthly repayments don’t come up under personal expenses every month. Basically there are no out of pocket costs to purchasing and keeping the property for a few years. Would that increase your serviceability due to the zero out of pocket costs or does it not make a difference?
