hello everyone,
before i begin i will apologise in advance for my obiously simple question however being very new to the property investment concept i am still trying to get my head around the enormous amount of info presented here and other sites, books etc.
now thats out the way….
my hubby and i have just put in a offer on our first IP and it has been accepted (hooray! we finally stopped procrastinating!!)anyway we are in the process of setting up finance and was wondering if anyone out there could help me out with what a line of credit loan is and its benefits. i spoke to a broker and he was not keen on it and kept steering us towards a P&I loan with redraw facitilies. is this a better loan? i explained to him that we are wanting to fast track our personal mortgage to increase equity to enable us to purchase more property.( and who knows maybe even do a little wrapping[
])
thanks in advance for any replies.
rie
PS Sooshie i enjoy reading your posts and think your useful links are a godsend for newbies like us. Thanks heaps to you and all those that have contributed.
[]Hey there Rie,
First let me say I am no finance guru…..The difference I see between LOC and P&I (redraw) is really the %interest and the flexibility. Thre is no question that a LOC is much more flexible and less hassle to use than any other product but usually there is a higher interest charge for this, eg. My house is LOC and I pay 6.56 whereas I have P&I on IP’s (Investment Properties) and I pay 6.05 %(Roughly). I think you have to go with what you feel comfortable with and what you can use and need. I guess with an IP you won’t really draw back so do you need a LOC ?? Also will the flexibility be worth the disparity in interest costs ??
Just some thoughts, I hope they helped.
Enjoy
AD [:0)]A great deal of talent is lost to the world for want of a little courage. Every day sends to their graves obscure men whose timidity prevented them from making a first effort.
-Sydney Smithhi AD
thanks for your reply. i agree that we will not be redrawing on our IP property. we are refinancing our personal mortgage(accessing equity) and setting up a new loan structure. hence the loan will be split to into two accounts, personal and IP. this was where i was wondering whether a LOC loan would be most effective and keep the IP loan fully drawn for tax purposes.
i am aware that the interest rate will be a little higher, but will a LOC enable us to reduce our personal debt faster.
hopefully this does not sound to confusing…
seeya
rieAs long as it works Rie that is what matters. I still believe though that a creative mortgage broker should be able to set up the same styructure cheaper. I currently use an LOC and se the advantages there though…as I said it is a trade off.As long as you are comfortable and can manage the process go for it..
Enjoy
AD [:0)]A great deal of talent is lost to the world for want of a little courage. Every day sends to their graves obscure men whose timidity prevented them from making a first effort.
-Sydney SmithHe Rie,
I just set up a LOC using a split loan
with an interest rate of 6.12%. One of
the reasons the broker may be steering you
away from it is that for it to work it should only
be used for investment purposes. That requires
a lot of discipline and therefore it would not suit
everyone. Something to consider, hope that helps.
Tarahi tara
thanks for your input also. it has given us some food for thought and have decided to go with what we feel comfortable with. either way we are still heading in the right direction, that is closer to our goal! can’t go wrong hey..
rieHi Rie,
You must ask yourself the question ….. How do the brokers make their money? … by writing more and more loans. By getting a line of credit they only get to write 1 loan with you depending on how you use it …. quick cash deals are great for LOC. If you use a line of credit you can property trade (buy 85% below the maket and sell at 105% above the market under a quick cash scenario) …. I use a LOC to do this. The great part of it is that you only pay the bank fees once at the start rather than every time you do a new property.
I hope this helped.
Jason
Property Trader | Boston West Pty Ltd
http://bostonwest.com.au
Email Me | Phone MePrivate money lending opportunities available paying upto 12%, secured by bricks and mortar!
Good point Jason,
I can see where the turnover would be much easier using the LOC. Hadn’t thought of that angle.
Enjoy
AD [:0)]A great deal of talent is lost to the world for want of a little courage. Every day sends to their graves obscure men whose timidity prevented them from making a first effort.
-Sydney SmithThanks Rie,
Good Luck with your investing…glad to help if
I can…Cheers
Sooshie [
]It’s all our imperfections that make us perfect!
])
]
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