Hello,
when we bought our only IP three years ago, our lender insisted that we use our PPOR (which is paid off) as security over the loan. We didn't see any issues with it at the time and proceeded. Now after doing some reading, I can see there is some risk attached to this. Now we are looking to buy a second IP and want to refinance and correct our mistake, but the little I have been able to find about LOC sounds alot like cross collateralisation. Or am I missing the point again? How are they different, or similar, and what are the risks with a LOC?
Thanks
Mark
Hi Mark
From what i am reading hate to say does sound like a dose of CC ising.
There are several ways to unravel the potential mess but would need further information to point you in the right difection.
To be honest often better to take a step back and correct the structure now rather than keep going and dig yourself into a bigger hole for the future.
Richard Taylor | Australia's leading private lender
Thanks Richard.
The lender is ING and their exit fee in the fourth year of a loan is $350. If I was to refinance this loan with another lender who would be happy to finance the existing balance of approx $180K (property valued at around $280K now) using the IP as security, I believe I would have to pay the establishment fees, plus the $350. DOes this sound correct.
So how do you access equity in your house/existing IP without CCing?
cheers
Mark
Hi Mark
At least the exist fees dont sound to bad with ING.
Personally the way i like to structure a loan for my clients is sit an investment line of credit behind their PPOR loan (which depending on a couple of things is usually Interest only with 100% offset account) and use these facility to draw down the deposits for the IP's.
Then take out a separate interest only loan on the individual standalone investment securities.
Direct all of your income into the PPOR offset account and repeast for each property.
Couple of ways of fine tuning the structure when it comes to sub accounts but all in all clean and easy to work with.
Security and the ability for an investor to keep going forward are the main aims.
Come back to us if want a hand.
Richard Taylor | Australia's leading private lender
Hi Rich,
Do you ever advise having a seperate line of credit to pay the interest on the investment property loans? (Rather than paying it from the offset account against the PPOR)
I am in the process at the moment of trying to work out whether this would be deductible, or if the ATO would smash me under Part 4A.
YoungInvestor wrote:Hi Rich,Do you ever advise having a seperate line of credit to pay the interest on the investment property loans? (Rather than paying it from the offset account against the PPOR)
I am in the process at the moment of trying to work out whether this would be deductible, or if the ATO would smash me under Part 4A.
You should get a private ruling, like this one
http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/93707.htmotherwise it would be too dangerous.
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
Mark
CC is a method of securing loans. It benefits the bank more than the borrower as the bank will usually get extra security.
LOC is a loan product.What would have been preferable is for you to have got a loc on your property and used that as the 20% deposit and then borrowed the remaining 80% as a separate loan.
You can fix things up now if the investment property has increased in value. All you need to do is to apply for a variation of security and release the PPOR from securing the investment. ING will need to do a new valuation on the investment and if the loan is 80% or less than this you should be ok.
Then you should set up a LOC on the PPOR – same or different bank.
Then get the new IP loan at 80% of the value – same or different bank
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 you guys, I really appreciate the help. Looking forward to sorting it out.
Best regards
Mark
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