Great…thanks TerryW. Will put all the options to my accountant. Thanks again
A question to the finance/mortgage brokers out there – how do you normally structure your clients IP loans?
Do you do an 80% Standalone Interest Only loan or LOC secured by the IP and 20% deposit in a LOC secured by the clients Owner Occupied property?
I like the flexibility of the Line of Credit however just wanted to know the best way to structure my loans before i borrow again. There seems to be quite alot of negativity around CC and it just wanted to get the structure in place before i purchase again.
Thanks in advance
Jacqui
Hi Jacqi
Yes subject to a clients equity position an 80% standalone Interest only secured against the investment property and the balance from either a LOC or interest only loan secured against the PPOR or other property.
Richard Taylor | Australia's leading private lender
So Richard do you normally go like a SVR Interest Only or Fixed or a LOC for the 80%. For accounting purposes would a LOC be ok as long as all drawings were only used for the IP?
Thanks for your comments on Destiny also – I think I will miss it a miss for now.. my main issue is sourcing new areas to invest and having someone to give me an independent opinion on whether its a good deal or not.
LOCs generally have a slightly higher interest rate, so I would only use these for accessing equity. No point in using a LOC for the new purchase (the 80%) – just get a IO loan. A LOC would be ok, but only if you did not use it to put money in and out, just to pay the minimum in interest each month.
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
Hi Terryw,
Yeah I think it makes more sense just to use a LOC on my personal home loan debt and a IO Loan for IP debt. Do you normally just recommend your clients to stay on standard variable over fixing?
I think servicing would be better on a standard IO home loan as it is taken over a 30 yr term not 25. I just like the flexibility of the LOC as there is no deferred establishment fee if loan is repaid within 4 years – if I was to sell or refinance. There is normally only a 0.10% difference in interest rates between the two products. If I was to stay on standard variable interest only would I still be able to reduce the principle during the IO term if I wanted to increase my equity once my personal debt was cleared?
No jacqui that is not the case servicing with most lenders is not better on an IO loan as most still sensitise the rate and calculate serviceability on a p & I basis. Odd exception of course.
Yes you can reduce the principal balance with most IO loans as long as the loan is not on a fixed rate whereby there maybe some restrictions.
Richard Taylor | Australia's leading private lender
Yeah Richard I know most Banks will calculate IO as P&I however im basing it on a lender which will use a 30 yr term on normal SVR loans where they will only use 25 year term on LOC's.
Do you and Terryw agree on not cross collaterising securities?
yes, avoid cross coll
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
jacqui_03 wrote:Yeah Richard I know most Banks will calculate IO as P&I however im basing it on a lender which will use a 30 yr term on normal SVR loans where they will only use 25 year term on LOC's.
Do you and Terryw agree on not cross collaterising securities?
With the 0.1% added on to the rate for LOC and 25 year debt servicing it smells like Cba.
If so; you can take a SVR with interest only for 1 year and service your debt over 29 years. After 12 months you can roll into another interest only period for 5 years with a variation from :- no credit or supporting docs required. If you do this with an offset you have your cake and can eat it too.
If required you can even take a 30 year loan an go to a branch to request variation to interest only the day after settlement:- they can do it over the counter. Once again credit assessment is not required to do this…
To add to my post above; If you take 5 years interest only up front debt servicing is calculated over 25 years. This is because they need to ensure you have capacity to repay after the IO period if it converts to PI. Hence the variation option allows you to borrow more.
Hey Banker – You picked it, I am talking about CBA home loans. To be honest I work for CBA, but dont hold that against me! haha
Thanks for your advice around servicing IO loans. What Bank do you work for? I presume your in a lending role also?
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