My partner and I have 2 investment properties that have been rolled into 1 mortgage… hvaing purchased the properties last year and looking to buy a PPOR next year, is it essential that we try and get these two properties split for tax purposes down the track? One of the properties is quite large and could be our PPOR once he have started a family. Our mortgage lender seems to think there is no need to do this at all…any help someone could give us would be fantastic…cheers
chrisYou do not want your PPOR linked to your investment loans. The reason is asset protection. The lender is saying it is not necessary probably because if the loan is with the same lender they can still take your PPOR if you fail to pay the investment loans. You really need a separate loan with another lender for the PPOR and another lender for the investment loans.
It also is in the interest of the lender to co-lateralise as much security as possible against the loans.
If they are separate loans you could still have a house to live in if the investment loans need to be foreclosed.If you don't plan on selling either or buying any more in the short term, the 'poor mans quick fix' would be to simply split your loan into two – one for each property, althought they will still be 'securing' each other. This would allevaite the booking keeping side. Sometimes to do a 'no money down' deal it can be tempting to cross secure properties, but it is really best to keep them seprate unless you have no other choice.
You will find a lot on this in the forum already, but as far as your own case goes, a lot would depend on the equity you have at present. If you have total borrowings of no more than 80% against a current valuation approved by your lender it should be relatively straight forward to have your properties 'stand alone'. Some banks in particular have the 'policy' of always cross securing automatically unless specifically instructed otherwise, and even then can be a battle. If your borrowings/equity falls into the above situation, may I suggest doing as you planned – perhaps infroming your lender that you 'may be seeling one soon so want to sort the securing of your loan out first'. DOn't let them bully you. obviously, if you have a high level of borrowings, or the poperty valuations have decreased it may not be easy/possible to do with your current lender.
However……Once it is done, leave it that way!All the best.
Chris
If one of the properties could be your PPOR and the other an IP it is imperitive that they be separate and that the loan structure be correct now and not then.
Yes your lender will want them crossed and will explain to you all the plus points (wont take them too long) of why they should be however remember they are trying to protect their interest and not yours.
It is certainly a condition with some lenders that the loans be crossed but the simple solution is get your mortgage broker to use an alternative lender.
Richard Taylor | Australia's leading private lender
thanks for that advice…..with wizard at the moment and he also informs me it would be quite expensive because we have a fixed amount, but that fixed amount was done on purchasing the 1st property so i'm not sure why this would be an issue….cheers
tuggerHi, X collaterisation works when you have no other choice. Until you need to split, it'd be cheaper to just roll with it. Look at the end result. If you can get a spread of 2%, it's worth it to refinance. Splits usually requires restructuring, which usually involves more fees.
I'd wait till I get an advantage from restructuring.
I'd always cross collaterised, not because I liked to but because it was the quickest & simplest way to secure the funding.
At one point, I had 4loans all linked but they were split, stand alone loans. When I sold, I didn't need to restructure. The set up fees for the stand alone facilities cost me $1000 more. That was 10 years ago.
So you do your own numbers & then decide. Good luck,
KYThe main point I'm taking from this and other threads, is that cross colateralisation can put your PPOR at risk, if you have X-colat'd with IPs (because the IPs could turn sour). Lesson: dont mix PPOR and IP loans together.
Are there any terrible problems associated with cross-colateralising strictly IPs only? I like to have cash on hand (insurance, in case I loose my job)- and x-colat (for IPs only) is attractive from that point of view.
Don't mix any properties/loans.
If a property is used as security they mortgagee can take possession easy. If not used as security they would need to go through a longer court process of getting a judgment etc. This will give you much more time and flexibility in deciding what you sell and when rather than the bank deciding.
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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