Hi,
We have 2 loans through Suncorp. One for our PPOR which is principal + interest, and another interest only for our investment property. We used the equity in our PPOR to avoid Mortgage Insurance on our IP. How would a lender value our existing properties against anything new? It's my understanding that we are better off not cross collateralising more than 2 properties, how does that then affect our borrowing capacity etc How does that then work if the next property is bought through a Trust?
Thanks for any help.
Chris
Hi Chris
If you can help i would not even X collateralise 2 properties.
You will need to extract the deposit and acquisition costs of any new IP from your current securities which maybe a problem hence the reason we suggest where possible all loans are kept separate.
Depending on the type of Trust you establish Suncorp may have a problem as it certainly not their forte.
If you keep the loans separate from Day 1 you eliminate problems in the future.
Richard Taylor | Australia's leading private lender
Richard,
Could you please explain a loan structure where you use the equity of your PPOR to purchase an IP without X collateralising. Do you mean take out a loan with another bank and use a redraw or LOC from PPOR to fund the deposit for the new loan?
If this is correct can you still do this with the same bank or financial institution without X Collateralising.
Probably from my questions you will see I have a very limited understanding on how to not X collateralise.
Would be very interested if you could clear the fog from my brain.
Cheers
Dave
Dave
No perfectly good question and one many borrowers ask.
One of my prefered structures is to establish the loan as follows:
1) Interest only or Principal & interest only loan for the non deductible portion of the home loan usually secured against the PPOR with the loan linked to a 100% Offset account.
2) Line of credit or similar sitting behind the main loan from which you draw down the deposits and acqusition costs for the IP's.
3) Separate interest only loan secured solely against the IP which can be with a separate lender. If this is a long term buy and hold then certainly consider a fixed rate of interest.
If you start with a nice clean slate without X collaterilising the securities you will avoide problems later on in your investing life.
Hope this clarifies the position.
Richard Taylor | Australia's leading private lender
Thanks Richard I thought it might be that way.
Dave
Thanks for the feedback. I will have to rethink my strategy.
A couple of other questions – In order to get the equity out of the existing properties would you have to refinance the mortgage and have either a line of credit setup or a redraw facility?
Can you refinance or have a redraw/line of credit established if the mortgage is at a fixed interest rate?
Are you not better off avoiding redrawing on your PPOR and redraw on an IP instead, as the interest on the PPOR isn't deductible. The repayments on the PPOR would go up.
Thanks again for your help.
Hi Kuade
You can just approach your existing lender and ask for a LOC or an increase on your existing loan. Your existing loan can continue as normal.
Deductibility does not depend on the security, but on what the money is used for. Therefore redrawing on your PPOR loan will be deductible if you use the funds for investment purpose – but only on this portion. that is why a separate loan is good as it keeps things easy when workin out how much to claim at tax time.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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