OK I understand.
With the LOC, is that at a higher interest rate?
Would it cost to redraw up to the 80% LVR of the re-evaluation of the IP?
Does this structure offer more protection for my PPoR? I'm assuming it will because Id only have $70,500 + costs tied to it, compared to the whole amount. Even so if the bank needed the money, they'd still sell my house to get the 70k + costs.
With this structure, is the interest charged on the LOC tax deductible?
Why wouldn't you simply pay off the LOC first then start dumping extra money into the offeset account?
Sorry for all the questions.
Thanks again.
With the LOC, is that at a higher interest rate?
All depends on what the original variable rate is in the first place. I think new CBA customers will find that they are paying more than other borrowers on their variable rate loans so with CBA YES definately. With other lenders NO.
Would it cost to redraw up to the 80% LVR of the re-evaluation of the IP?
All depends on the lender concerned. Many loans at the moment do not have any application costs so if this was the case NO. Most lenders dont charge an application fee on a loan increase usually just a new valuation fee if required.
Again a investor for the long term isnt worried about a dollar here or there when it comes to a valuation fee.Does this structure offer more protection for my PPoR? I'm assuming it will because Id only have $70,500 + costs tied to it, Exactly one of the many reasons. Just ask your mortgage broker to give you 10 reasons why you shouldnt cross collateralise your loans.
With this structure, is the interest charged on the LOC tax deductible?
Yes it the purpose of the funds that is important. Purpose = investment use = deductible debtWhy wouldn't you simply pay off the LOC first then start dumping extra money into the offeset account?
Because every time you redraw it is treated as a new loan and if the purpose of the funds is not for investment the interest is not deductible. The loan then becomes contaminated.Again dont want to appear like broken record but your mortgage broker should be telling all of this information.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thought I might add a comment…or three or four…
I would also prefer to mortgage only one title.
If you did get in strife you could sell the IP and pay the debt therefore the owner occupied home has minimal risk. If you have a funding buffer or funds in offset you will have time to sell the IP if in need.CBA are one of the only lenders that lend to either family (disc) trusts or unit trusts / with the option of company as trustee – at their discounted wealth package rates.
You could borrow 100% plus costs against your PPOR (keep the IP title at home) with the loan in the trust. You would need guarantees from anyone on the title of your home. CBA charges their guarantee fee per applicant rather than per guarantor so only one guarantee fee is applicable ($200) – other lenders charge per guarantee…
Terry’s option re gifting funds to the trust is ok but you will lose some asset protection as this can be reversed by courts / deemed your asset. However if a bank lends 100% plus costs you have no equity of your own in the trust and no gift than can be reversed.
With a trust your short term tax benefits will be lost but let’s face it the tax rate on 50k is not massive. Losses on the property can be carried forward and claimed in the future when the trust makes a profit or until the property is sold. If you do sell, at least with a trust you can choose who gets the capital gains.
It is also worth noting that if you have a company as trustee – your personal wealth package will not cover the company / trust. It will have it’s own 350 fee. Therefore maybe consider the economiser which at the moment has nil ongoing fees and NIL establishment, legal or Val fees.
Last but not least – CBA will currently cover your conveyancing cost (depending where you are / who you deal with) – all up not a bad deal if you exclude today’s rate rise. If the rate is good or not will depend on what the other banks now do with their rates.
Banker
P.s. This deal should be a no-brainer. Given that you are an existing CBA client with over 1m in net assets you should get a risk grade of one or two. This generally means same day approval, no vals and you could apply and be settled within a week.
Sorry Banker have to disagree there CBA are one of the only lenders that lend to either family (disc) trusts or unit trusts / with the option of company as trustee – at their discounted wealth package rates.
NAB do under Choice you get 0.7% discount upwards and can actually unofficially have a 100% fully transactional offset account in a Company name (Done 2 like this this week alone).
Anz do under their Portfolio product.
Westpac & The Dragon do under their Pro packs.
Admitedly they wont lend on HDT's under this basis but was under tjhe impression CBA wouldnt do HDT's either.
i could then list all of the lenders that dont charge any security fees and lend to HDT / UT / DFT's etc etc but given it is nearly 1am that will be for another day
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Yer Richard I realise my MB should know this, and be telling me this.
I understood everything except:
Why wouldn't you simply pay off the LOC first then start dumping extra money into the offeset account?
Because every time you redraw it is treated as a new loan and if the purpose of the funds is not for investment the interest is not deductible. The loan then becomes contaminated.What I meant was, with the extra repayments I want to make, should I use that to pay off the LOC first, then to the offset? How does that contaminate either loan? Sorry if thats a dumb question.
Banker, I was only ever mortgaging one property, my PPoR.
Hi Richard,
ANZ portfolio has a set up fee of $750 plus guarantee fees and an annual fee of $550. They don’t offer company / trust structures at standard pricing and portfolio is not suitable for a loan this small.
NAB need to be signed off by business banking which is a pretty hard sell without business exposure.
The dragon and trusts – let’s not go there…
Westpac also need trust deals to go through business banking as they can’t print trust docs from their Adelaide doc centre – retail bank cannot approve trust deals.
CBA is the only on that can approve a trust on the spot, without bending the system – and do the deal fast without a single exception to policy. By fast I mean within a week.
Couple of other things…
If it ends up being in a trust where is the benefit of a fully feature offset. It’s not as if the personal wage will go in to the trusts bank account?
Also – borrowing in personal name and then lending to trust will potentially take away the trusts asset protection – the bank(s) should make the full advance directly to the trust rather than a gift or loan from a related party / beneficiary. Gift can be reversed and loan is entered as the beneficiaries asset on the balance sheet…
Even with the 80% 20% split structure with the line of credit; you could place with CBA without cross-collateralising and have all debts contracted in the company name.
Banker
Didn't CBA increase its rates by 0.45% yesterday, despite the RBA increase being just 0.25%? So far they are the only ones. Another reason not to use them I think.
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
Sorry Bank i have to totally disagree
Anz DO offer the product as standard through Mortgage Origination under Portfolio.
Dont disagree with the fees but the product is offered with upto 12 splits.NAB Do offer the product through NAB Broker without the need to go to a Business Banker.
Westpac i will grant you there but SGB we are directly accredited with and never had an issue.
I have no problem in the total loan being in the name of Trust but that's not the point.
CBA are NOT the only major to offer such a structure under their Pro Package.
Terry you are soooooooo right. Come back as a Broker mate and give the legal game away.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Ok – so looking at what you’ve said…
ANZ is only on the portfolio – which has higher set up and higher ongoing costs – realistically not suitable or comparable in this sceario. The additional 750 set up fee and 550 annual fee for 12 splits versus CBA 350 for unlimited splits. Also under portfolio all securities are crossed via a floating multi product limit (the portfolio is not a specific loan rather a package / structure).
To explain – ANZ portfolio is an overall secured and guarantee limit. All parties guarantee the total limit and all properties support the total limit. You can then restructure loans captured within the limit without the need to restructure the security / guarantees ( they apply to the master limit). NAB and CBA offer these via private banking where the client can set up new loans and restructure debts between entities without new contracts / guarantee docs.
If you split the security – you have two portfolios as you need two master limits. Therefore 2 x 750 set up fees and 2 x annual fees (1100 p/a).
You agree with me Westpac need business banking and you were complaining the other day on a post that St George a crap with trusts…
Rate rise aside – the othe banks will likley follow. Why not go where the structure is not an issue?
The guy banks with CBA and probably rating one or two so would not even need vals and doesn’t need to cross collateralise?
Of couse we could talk more about ANZ but that is like comparing apples with a steak sandwich with the lot…
Banker
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