Hi all,
We used equity of our principle residence to buy our IP. If anything happens to the IP can the bank force us to sell our PR? Since the value of the IP has increased in the last 2 years should we ask the bank to release the mortgage of our PR?
Many thanks in advance for your inputs.
Huey
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]Hi Huey
If you have used your PPOR and your IP to secure your IP loan then yes, the bank can foreclose on the loan and sell both properties to recover their debt. If the IP can stand alone (i.e. if the value of the loan is less than 80% of the value of the investment property) then it is advisable to vary your mortgage and release your PPOR. There may be costs in doing this (normally around $300). The advantages of doing this are:
1. Your not over securing loans. You don’t want to give the bank any more security than you have to.
2. You are not tied to the one bank.
3. You can use the equity in your property to buy your next property.Just a tip…
In future perhaps think about structuring your loans a different way… e.g. Say you purchase a $100k property (costs = $3k)…
One loan (or a split on your existing loan) secured by PPOR. Use this split (or second loan) to pay for 20% plus costs (therefore $23k).
The second loan is secured by your investment property and is equal to the remaining 80% of the properties value (therefore $80k). Therefore, you have avoided cross securitisation. Once your IP increases in value you can refinance and draw down on the equity to repay the split ($23k) on your PPOR (therefore you have one loan of $103k secured by the PI only).
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auThanks Stu & Michael,
More details : We already paid off the mortgage for our PPOR before I retire. We used this equity to borrow 105% the value of our 2nd IP. Since the bank undervalued our PPOR so much it’s not enough to secure the loan without allowing the bank to hold both properties as security and paid mortgage stamp duties.
We have 2 IPs. The 1st IP is under my name & with another bank. I bought it with 20% deposit. The 2nd should be under my husband’s name but a friend advised us to set up with 99% him, 1% me for its ownership so when 1 of us die it would be less paper work & tax & stamp duties….. I’m not sure this arrangement is sound or not. After reading info from the forum it seems setting A DISCRETIONARY FAMILY TRUST is the way to go but I still don’t understand much yet. We have both grown-up & school-age children.
I’m in a better position now in term of equity to get more serious about property investment but still wonder at my age I should or should not. There are so many of you in this forum are young, knowledgeable & well planned in this field. I admire that & thank you very much for sharing your knowledge.
Huey
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