Hi I need some help in restructuring my loans. I have an IP with available equity of 60k after refinancing, and my PPOR with available equity of 24k after refinancing. I want to buy another IP using my equity. I also have 30k cash available sitting in a savings account. Currently all the houses and loans are separate and not CCed.
This is what I though of doing:
1) Refinance IP and PPOR to draw out 84k.
2) Get an IO loan for existing IP for new loan amount.
3) Get an IO loan for new IP.
4) Get an IO loan for PPOR for new loan amount.
5) Get a line of credit for the PPOR and park my 30k cash in here.
I was talking with my mortgage broker, and he suggested the NAB package. He is also trying to persuade me towards cross securing with a LOC, and have individual loan sub accounts for all the loans. Is there something in the NAB package where they like CC properties? This is in contrast to my reading that cross securing is bad and should be avoided and that I should be having separate loans for each property.
One question I have is, to draw out equity form my IP and PPOR, does that count as a separate loan for the equity portion? So in fact would I be left with 2 loans each for my existing IP and PPOR(4 loans in total)?
How does my loan structure look? I still think my structure of having separate loans is good, even though I would be paying monthly fees for each separate loan.
There is not reason to refinance to access equity. All you need to do is set up a new split.
Don't listing to the broker if he is suggesting cross collateralising the loans. This will create problems in the future.
What I would do is to put your savings into your PPOR, then set up another split on this loan.
Set up another split on the loan on IP with equity.Take enough money from these to new splits and use as deposit on the new IP and borrow the remainder as a new loan.
Make sure you have a 100% offset account on the PPOR loan and make sure all IP loans are IO
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
There are no monthly fees under a NAB choice package.
Richard Taylor | Australia's leading private lender
Hi Captian M,
As Richard has mentioned above, the NAB CHoice package has no monthly fees on any amount of eligible loans you have under it. Depending on who you get to 'look after it' the 'official' bank policy is to cross coll all loans – however you do not have to under the Choice package. From what you have had mentioned re sub accounts etc, I think your broker is talking about the NAB Portolio Package instead though, whereby the way it works is you must have all your properties secured together under that facility – it is not an option.. It is essentially a giant LOC with one limit, secured against all your properties, and then you can have sub accounts, fixed and variable, as many offset savings accounts as you like for variable sub accounts, and use them / split them up however you like. You would want to really know what you were doing, and have several properties, and no concerns with cross securing your properties to consider their portfolio package.
Are any of your exisitng loans with the NAB? As already mentioned, unless your existing lender is being uncoperative, you may still be able to access your equity as a seperate loan split without refinancing.Cheers
I agree with Terry,
You shouldn't need to cross collateralise to access the cash and it will really bite you down the track if you want to sell on of the properties or use the equity the banks can get a bit iffy.
Have you thought of getting another opinion. My mortgage broker very good with structuring and explaining the ramifications of it all.
If you want to have a chat to him just for some advice let me know.
Cheers
DeanMaybe I wasn't clear,
My IPs outstanding loan balance is 230k, and via the broker it got it revalued at 370k and my PPOR has loan balance of 437k and got valued at 560k. So together if I refinance I will have access to equity of about 64k (without paying LMI). I cant set up a split can I, when I don't have access to that equity in my loan accounts yet? With this in mind, does my original structure still hold true?With the NAB package my broker was saying that they charge $10 per month per loan account. So thats why I was interested in the total number of loan accounts. I had a look at the choice package, and no my broker hasnt told me about that. It does look better than the portfolio package.
Thanks guys, yes I wouldn't mind another opinion. It just that refinancing takes time, and this broker has got the new valuations from the independent valuers already.
Cheers.
hi
I think you misunderstand a bit. Your broker is doing you a dis-service if you set it up like that.
This is how I would do it.
Loan 1 $437,000
Loan 2 (new split secured on PPOR) = $560k x 80% – $437k = $11,000Loan 3 $230k (IP 1)
Loan 4 (new split secured on IP 1) = $370,000 x 80% – $230k = $66,000Net result = $77,000 available equity at 80% LVR without cross collateralising the two properties. No LMI payable.
Interest on loans 2, 3, and 4 should be deductible if the funds are used for investment purposes.
This achieves what you want to do and is more effective than what your broker is suggesting.With the funds from the 2 new loans, which can be LOCs or IO loans with redraw, you can use this as 20% deposit on IP 2.
Net result is 3 properties, all stand alone, no crossing and a tax effective structure.
I would just add a 100% offset account attached to loan 1 (PPOR) to store all spare cash and for rents and pays to be deposited into. I would also suggest you use a professional package to avoid loan fees and app fees etc.Subject to serviceability you could get something up to around $308,000 without paying LMI.
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
No worries captain M.
Well if you do want a second opinion give Andrew Griffiths a call on 0402294429.
He used to work for the Comm bank so is pretty cluey about how to set things up.
If you do call, just explain how you got the number.
Cheers
Dean
Captain M,
NAB portfolio and NAB choice package are different products. Portfolio is mostly sold via business banking and has a higher annual fee. I think it is approx $550 – $600 P/A. The “portfolio limit” is what you apply for and have any guarantees signed for. You can then adjust your splits and even change the names on each split without the need to sign new contracts (one page variation). E.g. if you have a split in joint names you can change to a single name with a single form – no new guarantees as it is captured under you guarantee of the total limit. You can also increase one split and reduce another the same way – if you stay within the portfolio limit.I didn’t think they sold this via the broker channel. CBA has a similar product through their private banking (you need 2.0M net assets outside of your home to have a private banker at CBA) – you can also get it CBA Business Banking however not retail. PS – the comment above re NAB having a policy to cross collateralising all deals is a load of bollocks. Never saw such a policy when I was there and I had underwriting authority of $5.0M. It’s up to the way the deal is submitted – e.g. your choice.
Banker
Cross Collateralising securities can often be a condition of similar based products to the NAB Portfolio product.
Take the Dragon Professional package – Advantage it is a condition of the package that each loan be crossed with each other and they are not alone.
Richard Taylor | Australia's leading private lender
hi RIchard
I have put many a client to St G and never had a problem keeping the loans uncrossed.
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
Terry
Not saying there arent exceptions but it is a standard condition of the Package.
When i was with the Dragon there were lots of rules we didnt used to comply with but still were supposed to.
To avoid CC the securities you need to make note on the submission otherwise under the package they are automatically crossed.
Richard Taylor | Australia's leading private lender
Hi guys,
Would someone be able to explain what you mean about "splitting loans" ?
Loan 1 $437,000
Loan 2 (new split secured on PPOR) = $560k x 80% – $437k = $11,000 – Is this like an LOC on the the loan?? As in the $11,000 is available to draw down at any time? Or is it actually another loan?If someone could explain that would be great!
Loan 3 $230k (IP 1)
Loan 4 (new split secured on IP 1) = $370,000 x 80% – $230k = $66,000Ok, Richard. I agree with that. Same at NAB 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
Dean Potter wrote:Hi guys,Would someone be able to explain what you mean about "splitting loans" ?
Loan 1 $437,000
Loan 2 (new split secured on PPOR) = $560k x 80% – $437k = $11,000 – Is this like an LOC on the the loan?? As in the $11,000 is available to draw down at any time? Or is it actually another loan?If someone could explain that would be great!
Loan 3 $230k (IP 1)
Loan 4 (new split secured on IP 1) = $370,000 x 80% – $230k = $66,000The $11,000 loan could be set up as a LOC or another IO loan with redraw. either way is fine.
In practice $11,000 is not much, so it may not be worth setting up at this stage if it is not needed. Maybe best to wait for more equity
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
Terry,
Is the interest charged on the LOC tax deductible if I use it as 20% deposit for an IP? Thanks.
Interest on money borrowed for business or investments is generally tax deductible.
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
Thank so much Terry. One more question.
How about a Loan Account with an Offset account? My bank told me that a Loan account wiht an Offset account will have lower interest charged compare to LOC but not sure if is it tax deductible if I use the money for IP. They advise me to talk to an accountant.
A LOC is totally different to a offset. They are used for different purposes. They can't be compared really.
An LOC should only be used to access equity for further investing.
A 100% offset account should be used for receiving all monies such as pays and rents. and this should be linked to the PPOR loan because it will reduce non-deductible interest.
Some people use the LOC to receive all monies, but this is a serious mistake to do on an investment loan. It wouldn't be advisable for a non-deductible loan either.
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
This is really helpful. Thanks again.
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