Hi guys, this is my first post after reading the forums for a few weeks. I'm learning heaps, so thankyou for all your contributions.
I have a few questions and I'm interested in forum members opinions.
I have an IP valued at 285K with 195k owing, P&I loan. I want to use the equity to fund IP number 2, purchase price around 300k. I have approached a broker who has suggested the following. (By no means am I committing to this structure, I still researching and interviewing brokers)
1. The broker wants me to refinance the current loan to interest only, then borrow the required funds (approx 507k) from ONE bank lender using ONE offset account to manage the income and expenses of both properties. He says I can get a 'professional package' from the bank allowing me 1 free restructure every year, free offset account, credit card and discounted lower interest rate….all for at an annual fee of $340. I am still unsure if this structure will lead to some sort of cross collateralising (which i do not want). I have not got this far with the broker.
From reading the forums, my understanding is that it is much better to have 2 seperate loans from 2 seperate lenders. If this opinion of the majority, can anyone reccommend a broker in SYDNEY who can assist with:
1. Refinance of current loan for 195k, and a method to access the equity to use as a deposit and borrowing costs for IP number 2.
2. Someone who does not use cross collateralising, and is focussed on using 2 lenders for 2 seperate loans.
Thanks guys for any comments or ideas.
J
Your broker sounds like he is trying to get the lowest interest rate .
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He is cross co laterialising the properties but he is correct in the professional package in giving you a lower interest rate on large loans over 500k but failing in listening to what is really important to the customer. Sounds like the broker has the thinking only of a lower interest rate is better. The broker will be worried that a bank or another lender will offer you a lower rate and he loses your business which happens a lot to brokers.A line of credit loan against property one would be a loan of $33,000 so if you can get finance on 90% LVR for property two with 33k as deposit.
Yes your current Mortgage Broker sounds like he is a young pup and not an old timer like some of us who are stuck in our ways about not wanting to cross collateralise a clients loan.
I would strongly suggest you looked at switching the current IP from P & I to IO with 100% offset (assuming you have no other non deductible debt) and then taking a LOC or similar against the equity and using this as deposit to go elsewhere.
Also think your Broker might be out of touch as you can get a Professional package with only $250K borrowing so can then use the raised funds and split the loan appropriately.
Cross collateralise now and it may come back to haunt you in the future.
Richard Taylor | Australia's leading private lender
Thanks guys, both of your comments have been very helpful.
I think I will seek a broker who will refinance my current loan to:
1. Interest Only
2. Into a structure that allows me to draw down equity through a line of credit or similar
3. Draw down on the LOC and borrow funds from another lender for the purchase of IP2Can anyone reccomend a broker in SYDNEY who thinks this way?
Thankyou all
J
What the broker is suggesting is cross collateralisation.
I am located in Sydney, but don't take on new clients anymore. I can refer you to someone if you send me your email.
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
Why not cross-collateralise? I have found that it is far easier to get loans approved, get good deals and banks ACTUALLY want to talk to you once you have a large amount to bring to the table. Think about it….
Cross collateralising only becomes an issue if you are trying to offload and you wont re-invest your profit by paying down a loan. Think about your goals….
Here is one major reason:
You have 2 properties valued $100,000 each. ie $200,000 in total.
You have 2 loans of $80,000 each.
each loan is secured by both properties (ie crossed)Things start to go bad in your personal life. You have a heart attack etc etc.
You try to sell property 1. no buyers so you drop the price to $90,000 and quickly find a buyer.
You need to apply to the bank to sell this house as it is used as security for loan 2 as well as loan 1.
So the bank needs to do a valuation of IP 2. It comes in at $90,000The bank requires the loan to be 80% LVR. 80% of $90,000 = $72,000
So not only have you taken a hit on the reduced sale price of your property, but now you need to pay down the remaining loan by $8,000 or the bank will not release the property.
This happened to a friend of mine in real life – but the figures were much worse. He had to come up with $40,000 cash to pay down the remaining property. He was selling the first one because he had no cash. So this meant he couldn't sell and the bank ended up repossessing both properties and I think he is bankrupt now.
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There is absolutely no reason to cross collateralise 2 or more properties. If the deal can be done with crossing, then it can also be done without crossing.
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
In addition to what Terry has written who now pays the Capital Gain Tax.
Seller thought he would have a few quid over to cover these expenses but now finds he has to pay more money into the loan and also cover his CGT bill at the end of the year.
Or in fact the remaining security is a unit and either his lender now doesnt accept the security on a standalone basis due to the:
1) Size as it is only 44 sq M / Rural over 25 acres etc.
2) Doesnt have sufficient income to on paper service the loan. Was rely on the potential rent but the lender know doesnt take rent on an unit into consideration i.e Heritiage or takes a lower percentage of rent that orginally i.e Homeside at 60% for example.The downsides are endless and happen every day but the plus points are few and far between.
Richard Taylor | Australia's leading private lender
THanks guys for the excellent info. I appreciate it very much
I will definatley be avioding crossing as i see far more benefits in avoiding it, and it will siut my purposes more.
J
Terryw wrote:What the broker is suggesting is cross collateralisation.I am located in Sydney, but don't take on new clients anymore. I can refer you to someone if you send me your email.
Can you refer me to a broker in perth terry it would be greatly appreciated.
don't know anyone in Perth sorry.
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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