Hi there intelligent ppls,
Wow…this is a very informative site, I have learnt a lot by reading the forums. Nice…everybody is chipping-in to compound the wealth of knowledge…great stuff!!!
Hey are there any Mortgage Brokers or finance Whiz’s that can help me with my situation/goals?
My current goals are to remove cross-collateralised security and maybe restructure finance – I want to reduce bank control/security over my assets.
IP #1 – the goal is to allow equity to build over time. I’m hunting for a bank product with a low comparison fixed rate, interest-only, maximum LVR, etc – compatible to my situation.
IP #2 – once the cross-collateralised security is removed the goal is to sub-divide the corner allotment and create a new land title. Leave the existing dwelling at the front and construct a new dwelling at the rear – thus create IP #3.
How do I remove cross-collateralised security?
Banks terms ‘interest in advance’ or ‘interest in arrears’ what is it and more to the point would this suit me?
How do I use the new equity after sub-division to fund the construction costs (unsure of the process), what bank product will suit? – my forecast value after sub-division is about $500K+- then construction cost about $100K+-
Are there any current bank products on ppls radars that may be perfect for my situation and goals?Any suggestions or advice will be much appreciated and all comments are welcomed…I still have much to learn.
Best regards ToWhomItMayInterest
My details / situation:Single – no children / permanent all expense payed overseas employment / non-resident tax status
Income – $160K for financial yr 2008 / salary increase – expect $180-$200K for financial yr 2009 / current savings $50K
Taxable Income – property rent combined @ $560per-wk
Debts – are 2 IP / cross-collateralised
IP #1 – built 2004 / land 300m2 / purchased DEC2005 @ $195K / current market value $250-$260K
3yr Fixed interest loan just ended with Colonial/CBA – now @ standard Colonial/CBA variable rate 6.14% / LVR 90% / current debt $165K / bank valuation @$240K
IP #2 – built 70’s / land 800m2 / purchased MAY2008 @ $380K / current market value $380K
Standard CBA variable rate 6.04% / LVR 80% / current debt $330K / bank valuation @ $380KI have to be honest I haven't done sub-division projects or borrowing money but from what I have picked up from attending the Melbourne investor meetings run in Blackburn you probably need to investigate a lending product known as a construction loan.
might find that your current lender has a product for this situation.
Do a search on google for construction loans or development loans for some examples of types of loans available.
To un-cross your properties you can just contact the bank and ask for a variation of security. They may need to do a new valuation depending on how old the last ones were. Then if you have an LVR of less than 80% it should be easy. If the LVR is more, then it is still possible to un-cross if you pay LMI.
For the construction part, most lenders will lend up to 80% of the construction cost – if fixed price contract – and 80% of land. YOu can get more with LMI too.
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
Morning TWIMI
Firstly welcome to the forum and I hope you enjoy your time with us.
CBA Colonial are like most lenders where the opportunity arises they will jump in feet first and cross collateralise every loan going. All sounds good when you sit down for coffee in the local managers mini office and he or she tells you the virtues of using them as a lender. Somehow they just seem to forget the bit about how we have you tied up for ever and woo betied you if you ever try and leave us.
Your situation is like so many clients i have seen before where now the Bank calls the tune and you like the fable state merely follow behind.
The initial property IP 1 is a fixed rate loan and therefore given the current rate of interest and potential break fee would not suggest you mess with this. In saying the security we can use to free up some additional equity on IP and allow the Bank to have this standalone.
IP 2 is a different matter and being variable would mean that you could look to refinance this and free up your equity.
Subdividing the security is one thing but you need to check that the local council will actually allow you to obtain a separate Title as this is the bit that will enable us to gear against to construct the new security.
Whilst a Gross Realisation loan would be achievable on a commercial development whilst the security is residential we will be limited to construction costs. No real drama given the increased land value and overall security.
Obviously there are a couple of other bits of information missing from your scenario but all in all doesnt seem like an unsummoutable problem.
Richard Taylor | Australia's leading private lender
Great, thanks…sorry for my delayed reply there's about a 7hr time-zone difference between us.
Hi Duckster,
Yeh, good idea I will research the nuts and bolts of construction loans on google…I haven't tried that yet…I'll let you know if I find anything interesting.
Might uses CBA for the construction loan but only after cross-collateralised security is removed.
Then I can also take IP #1 to any bank offering the current best 3yr fixed rate at the moment (I might use NBA…not sure yet???). Once IP #1 is locked in again for around 3yr, I'll let it sit to build up capital growth then raid the funds later.
Hi Terryw
That's a good one!!!…a 'Variation of Security'….I like the sound of it, first chance I get I'll be on the phone to CBA.
IP #1 – has sufficient equity to stand alone.
IP#2 – if the debt is reduced to $300K (from savings) this IP should then be able to stand alone aswell.The next stage will be to establish if the CBA will be compliant with the 'Variation of Security' request, I'm assuming it may be as hard as 'pulling hens teeth'.
Hi Richard
Your absolutely right I feel like I'm being strangled…financially.
At the time of purchase (IP #2) I was in Australia and only had a few weeks until I had to return overseas for work. The estate agent selling me the IP suggested (due to lack of time to organise finance, contracts, etc) that I approach my bank rather than a Mortgage Broker to speed up the process.
The next morning I payed a visit to CBA, I must have told them at least 5 times "No Cross-C".
At the time I was also conducting small reno's on IP #1 to bring up to date landscaping, paving, tiles, painting,etc. Also cramming a lot of other activities into my short period of time in Oz such as meetings, visit with family and friends, etc.
Streeeetched for time…trying to achieve too much…added excessive pressure on myself, reduced my concentration and better judgment.
When the time came to signing contracts I didn't have enough coin deposit (just short) for the 80% LVR to avoid LMI….Oh no!!!
CBA solution was…Hey you have equity in IP #1 let's cross-c.
What choice did I have…time was running out and I didn't want tot miss out on the IP…I signed.
After signing the contract I walked out of the bank with a big grin on my face but at the same time scratching my head. Hey…there must have been a better option to access the IP #1 equity rather than cross-c.
Oh well…I was happy I just brought another IP…yippee
Now…I wish I didn't rush it…lesson learnt.
IP #1 was at a 3yr fixed rate – now a variable rate…sorry I didn't make myself clear there…now hunting for another 3yr fixed rate product.
The council told me it should be ok to split the allotment, I gave them the address details, just need to confirm with a land conveyor and get the ball rolling.
To all
Another question is concerning CBA security over IP #2 – Is it ok to just go ahead and split the allotment or do I need to get permission from CBA first?
– I could pay from my savings for the sub-division costs then have CBA re-value after.
Best regards ToWhomItMayInterest
TWIMI
Dont worry about the time difference i just got off the phone from a client in the UK so now all about time difference.
Your Bank will need to consent to any subdivision and will want their legal department to run over it.
Remember once the subdivision has been approved you may not get separate Title to the property (Many Councils require the construction to have been complete before they agree to this) and even if you do again CBA will want to approve this and will need to show that their mortgage subject to valuation is registered on both securities.
Who mentioned financial strangalation ………
Richard Taylor | Australia's leading private lender
Hi Richard
Thanks for clarifying.
D'oh!…I was hoping sub-division would be that simple…seems CBA has a tighter grip then i first thought…however at least it's still achievable, just a little more complicated.
Back to plan 'A' – remove cross-c first.
Question (to all) Let's say I refinance my IP #1 with another bank at today's market.
The bank offers their take on a hassle free, financially blessing, once in a life time golden opportunity, a product that is unmatched by all.
What's your general estimate of monthly repayments (minimum total), I should expect to pay?
– Interest only
– Bank valuation $250K
– Debt $225K – 90% LVRBest regards ToWhomItMayInterest
If you worked on say 6.25% (probably be a little less but a good start).
$225,000 x 6.25% / 12 = $1172 / month.
Richard Taylor | Australia's leading private lender
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