Line of credit for cash reserve

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Elta
Member
@elta
Join Date: 2002
Post Count: 4
February 4, 2003 - 6:02 am
Hello everyone []
I was just reading Steve’s January report thingy were he used an example of a recent post. ‘Bella’ wanted to know what to do with the 1500 saving she had and Steve put forward the idea of a line of credit (LOC) facility to reduce the principle and interest payments while preserving the liquidity of the savings. Given that scenario, and assuming I have understood correctly, I have a question:
If I returned to OZ with say, 70,000 worth of savings and wanted to get into wrapping, would a positive course of action be to put the majority of this money into the loans of say, 2 houses, and then take the money out for deposits as I needed it in the future? Am I understanding this LOC thing correctly, is it that simple to redraw the money form the LOC account? Any comments would be really helpful [].
Regards, thanks and well wishes,
P&E
FW
Member
@fw
Join Date: 2002
Post Count: 478
February 4, 2003 - 6:59 am
Hi P&E
One thing you may need to watch (this may only be the case in Victoria) is that once you have a mortgage on a wrap property, you cannot alter it – ie no refinancing etc. I’m not sure how this would work if you had a LOC against a wrap property, but you’d need to be very careful.
The LOC is usually separate to your wrap loans, for example a LOC against your PPOR, and funds are drawn down from the LOC to fund deposits, then you borrow the 80-90% required for the wrap house.
That’s how I work it (well, basically!!)
Keep smiling
Felicity
Elta
Member
@elta
Join Date: 2002
Post Count: 4
February 4, 2003 - 7:41 am
Thanks again Felicity,
We are with you on the LOC thing, that makes sense. Actually, I botched the term Steve used. He said ‘mortgage offset account’ not LOC. As I understand from re-reading the ‘Insider’ article, the MOA gives you two benefits:
1) It can reduce the loan capital and consequentially the interest of the loan
2) I could redraw from it to fund any other ventures I might want to embark on.
Are you familiar with this? …Has anyone done it?
If it is as easy as that, I think one of my main problems is solved. Still don’t know what to do with the cash in the meantime though.
And thanks for the time you have given to address my relatively petty questions, REALLY appreciate any comments at this stage of the game…[]
Regards and peace,
Peter & Elke