Hi All
I would like to get some feedback from the people on this forum as the the pros and cons of the options i am looking at.
My wife and i are currently renting and have an IP worth 650K with a loan of 480K (LVR 74%).
We are wanting to purchase a block of land with the intension to build our PPOR on it in the next 2 years.
We have about 50K in savings and are looking at spending about 300K on the block.Our long term goal is to pay off our PPOR slowly and use the equity in the IP to purchase more IP's
These are the options as i see it:
1) Join the 2 properties by refinancing our IP to use the equity to bring the total LVR below 80% so we don't pay LMI
2) leave the IP loan as is and take out a new loan with a different lender using the 50K as a 10% deposit and pay the 6K LMI
3) Setup a line of credit on the equity on the IP and take out a new loan with a different leander using the 50K and line of credit as a 20% deposit so we don't pay LMI. We will then pay back the line of credit first.
Any feedback or additional information would be great.
Thanks
chrisWhatever you do don't join the two loans or you will create a tax mess and end up paying even more in tax.
2 or 3 would be an option. Probably 3 would be better and put the $50k into an offset account attached to the new loan. If you use your cash now you may find you need it down the track.
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
I would refinance the IP and combined with the purchase of PPOR. Split the loans to ensure you get maximum interest deductions from IP using interest only. Loan on PPOR considered "bad debts" because you can't claim tax deductions.
Hate to disagree with our previous poster but i certainly would not join the loans together.
As Terry mentioned keep them separate and structure so they are both standalone.
Richard Taylor | Australia's leading private lender
Thanks guys for the feedback.
I guess i am leaning towards keeping both loans separate but want to not pay LMI so that means option 3.
This is my preferred option only because people say don't join the 2 properties. Is there any real reason to not join the properties? Mortgage brokers i have seen in the past all say there is no reason not to join them as both titles will be in joint names.
If there is no real benefits in keeping them separate then wouldn't the easiest way to get the equity out of the IP be refinance?Thanks again.
Regards
chrisI gave the reason not to join the two loans. If you mean cross collateralise the loans, then don't do this either.
Imagine you later decide you want to sell one, but the main loan for this one is secured by both properties. You will thereby need the banks permission to sell. They will need to do a valuation and reassess your loan. If the remaining property has dropped in value then they may require a cash payment to release the 2nd property. LVRs must be kept within limits. If you had stand alone loans this would not be a problem.
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
Thanks Terryw
I did not think about that. I think if it is possible then option 3 sounds like the way to go.
Thanks again chris
As already mentioned, it is ideal to keep separate if you can. That said, for cost saving and convenience IF you can achieve it, it is not the end of the world to cross secure the two properties with the same lender, and have 2 different loans (ie – all the refi & stamp duty costs, legals etc you would have as borrowings on the investment loan) assuming you have no plans in the short/medium term to sell either place, or purchase a third property. If you do…….then don't.
All the best with your plans.
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