I am signing a contact for a new NRAS House and Land IP on Tuesday. I have always been advised not to cross collateralize the loan and utilizes my existing LOC from my PPOR to the tune of lets say 20% and the new loan with the other bank the remainder. This strategy makes perfect sense to me.
The broker is was going to use is very good but he is unavailable for a while so I rang another whom suggested I get out a "105% loan" He said that the ATO may not see interest on the 20% portion of LOC as being tax deductible. Is this right?
Furthermore the Finance provider implied that I can gain access to further funding mush easier and expanding my portfolio quicker by cross securitization and also the ATO would clearly see the Loan as being purely for Investments. They said it doesn't mater if you separate the loans and securities, as the banks can get there hands on your other security if they really wanted to.
What do you guys think?
A) No absolute rubbish. If the purpose of the funds is for investment the interest will be deductible. it wouldnt have mattered if you had secured them against a pogo stick you could still claim the interest.
He said that the ATO may not see interest on the 20% portion of LOC as being tax deductible.
You bet they did. Certainly not the case. Might be more beneficial for the financier but wont be for you.Furthermore the Finance provider implied that I can gain access to further funding mush easier and expanding my portfolio quicker by cross securitization and also the ATO would clearly see the Loan as being purely for Investments
Just ask the Broker / Banker how many investment properties they have and that will give you a sense of a feeling of whether they are experienced in this field.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Mark,
I think you should use a broker who has a clue. Whoever gave you that advice clearly doesn't.
Regards
AlistairAgree with above. Ditch him. He obviously just wants you to take out the max loan through him.
The only way the LOC is an issue is if you mix it with personal use. If it is solely for investment then it is tax deductable. What makes it tax deductable is the USE of the money.
Just go to the bank and tell them you want to access your equity for deposit and legals on an IP. AND you want a separate 80% loan on the IP.
Yes, that broker doesn't know much – don't use him would be my advice.
Ask him what would happen if you crossed the loans and needed to sell one property but the remaining one had dropped in value?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
no no no…. don't go down this path
For starters, loans for purchasing NRAS property are only available through a limited number of lenders.They are generally available to 80-85% LVR maximum. Anyone recommending a 105% loan ( which I assume is the 105% Mortgage House product – which isnt available for investment anyway) for an NRAS investment property purchase hasn't graduated mortgage broking class 101, yet. They certainly dont know NRAS.
I have posted extensively on NRAS finance previously, but I'll post here again, as these questions seem to keep coming up. Depending on which Approved Participant the NRAS incentive is being administered by, these are your finance options…
QAHC – Head Lease Agreement
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Questus – Non Entity Joint Venture via Managed Investment Scheme.
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Aspire – Non Entity Joint Venture
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRASYarran Group – Non Entity Joint Venture.
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.UAHA – Non Entity Joint Venture
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Ethan Affordable Housing – Non Entity Joint Venture
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.
Bendigo Adelaide – 80% LVR without LMI. They use 65% Gross Rental for servicing and they do NOT use the NRAS incentive for servicing.Affordable Management Corporation
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Accelerated Wealth Systems ( Quantum )
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Of course, you can ignore this, and get around the LVR restrictions by simply not declaring the property is NRAS, when appyling for a loan. Its easy enough to do, as NRAS isnt mentioned anywhere on the contract of sale you would present to the lender. This would achieve two things. Firstly, it would allow you to access any lender in the market, as you would be presenting a generic investment loan application. Secondly, it would allow you to access 90% LVR, as most lenders policies allow for this with conventional investment loans. So I can see how it might be tempting for investors who dont have enough equity to buy NRAS at 80% LVR for example. I can also see how it would be tempting for brokers to use this "loophole", so they can write the loan and make a commission
However, if you fail to disclose the fact it is an NRAS property, you would technically be presenting false information on the application form, and the bank would be calculating your borrowing capacity based on full market rental rather than discounted NRAS rental. It amounts to fraud, and it's a very very dangerous path to tread. If a lender discovers the property is NRAS after the loan has settled, they may call in your loan on the basis of failure to disclose. I suggest you double check and triple check that any broker you use, is disclosing NRAS to the lender, and is sticking to the lenders above, so you don't have any problems down the road…
Just my 2 cents…
euro73 wrote:no no no…. don't go down this pathFor starters, loans for purchasing NRAS property are only available through a limited number of lenders.They are generally available to 80-85% LVR maximum. Anyone recommending a 105% loan ( which I assume is the 105% Mortgage House product – which isnt available for investment anyway) for an NRAS investment property purchase hasn't graduated mortgage broking class 101, yet. They certainly dont know NRAS.
I have posted extensively on NRAS finance previously, but I'll post here again, as these questions seem to keep coming up. Depending on which Approved Participant the NRAS incentive is being administered by, these are your finance options…
QAHC – Head Lease Agreement
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Questus – Non Entity Joint Venture via Managed Investment Scheme.
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Aspire – Non Entity Joint Venture
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRASYarran Group – Non Entity Joint Venture.
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.UAHA – Non Entity Joint Venture
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Ethan Affordable Housing – Non Entity Joint Venture
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.
Bendigo Adelaide – 80% LVR without LMI. They use 65% Gross Rental for servicing and they do NOT use the NRAS incentive for servicing.Affordable Management Corporation
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Accelerated Wealth Systems ( Quantum )
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Of course, you can ignore this, and get around the LVR restrictions by simply not declaring the property is NRAS, when appyling for a loan. Its easy enough to do, as NRAS isnt mentioned anywhere on the contract of sale you would present to the lender. This would achieve two things. Firstly, it would allow you to access any lender in the market, as you would be presenting a generic investment loan application. Secondly, it would allow you to access 90% LVR, as most lenders policies allow for this with conventional investment loans. So I can see how it might be tempting for investors who dont have enough equity to buy NRAS at 80% LVR for example. I can also see how it would be tempting for brokers to use this "loophole", so they can write the loan and make a commission
However, if you fail to disclose the fact it is an NRAS property, you would technically be presenting false information on the application form, and the bank would be calculating your borrowing capacity based on full market rental rather than discounted NRAS rental. It amounts to fraud, and it's a very very dangerous path to tread. If a lender discovers the property is NRAS after the loan has settled, they may call in your loan on the basis of failure to disclose. I suggest you double check and triple check that any broker you use, is disclosing NRAS to the lender, and is sticking to the lenders above, so you don't have any problems down the road…
Just my 2 cents…
PS – no need to cross, if you have enough equity in another property to provide 20% plus costs. You would simply add a new split to your existing mortgage, for 20% plus costs. Set it up Interest Only , as its being used for investment purposes. You would then get a stand alone NRAS investment loan with one of the lenders I've mentioned, for 80% LVR.
euro73 wrote:PS – no need to cross, if you have enough equity in another property to provide 20% plus costs. You would simply add a new split to your existing mortgage, for 20% plus costs. Set it up Interest Only , as its being used for investment purposes. You would then get a stand alone NRAS investment loan with one of the lenders I've mentioned, for 80% LVR.You don't even need that much. If you're willing to pay some LMI then 10% plus costs may be enough.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Jamie M wrote:euro73 wrote:PS – no need to cross, if you have enough equity in another property to provide 20% plus costs. You would simply add a new split to your existing mortgage, for 20% plus costs. Set it up Interest Only , as its being used for investment purposes. You would then get a stand alone NRAS investment loan with one of the lenders I've mentioned, for 80% LVR.You don't even need that much. If you're willing to pay some LMI then 10% plus costs may be enough.
With all due respect, I dont believe thats appropriate advice. There is no lender who offers 90% LVR for NRAS, at the moment. That may change , but at the moment 90% isn't officially available for NRAS. Sure, there are always deals done by exception, on a case by case basis…. but there's no way 90% is broadly available. NRAS deals cannot and should not be treated like conventional investment deals where 90% is secured against the investment. I've made detailed posts on here about the NRAS lending policies available…..
Hi Euro
I didn't pick up that it was an NRAS deal – thanks for pointing out.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
HI Markymarko,
I don't know to much about this industry, but I cross collaterized to purchase an IP in Brazil a few years ago.
I am now in a situation where I am looking to purchase another IP and the bank won't let me uncross.
Problem for me here is that these properties ,they have used as security, and now I want to draw equity from one of them but they won't
allow it, even though between the 2 I have easily about 600k equity. The property in Brazil only cost me 240k.
So I am going through a major finance restructure so that I can use my equity bla bla bla, as I said earlier, I don't know much about this industry, but from my experience I would advice against it. For your information this was with CBA. It is costingme time and potentially money because I have missed out on some great buys because I havn't been ready.
All the best.Hi Packer, CBA can generally uncross with no fees. Restructure via a 3 page switch application. Should be as easy as pie.
Thanks No1,
I will mention this to my broker, but I had a sit down with the lender and she was paying hard basket.
I have mislead you a bit also I appologise. One of the houses that is crossed is my parents (which is owned outright) and my one which I have about 100k equity. As my LOC is 270k and the investment is in Brazil, they don't recognise it.
I am in debt more than i'm worth (In Australia). They would not let my parents take the loan themselves because they are "to old" yo service theloan apparently with only one income. We are going for the refinance through AMP so that my parents take the whole loan, remove my name and free me from the loan (but not the debt as this is my property) freeing up my equity on my PPOR to shop around.I hope i have put a little more light on my previous misguided post.
Felipe
Hate to disagree with Euro but there are certainly several lenders who will do 90% on a NRAS property.
Have settled a number of them and both mortgage insurers are ok.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Who does 90% Richard? There's not one single lender with an official policy to 90% LVR. Westpac's( and St George and Rams) policy is 85%. Firstmac's is 80%. Bendigo Adelaide's is 80%. Of course, I know some deals are being done on a case by case basis, and Ive stated that several times in my posts, but Im posting information on the general lending policies in the market, – the policies that most investors will encounter.
If you got a few 90's done thats great – you must have good lender relationships and the clients were clearly strong… but who were the lenders, and which NRAS model were the customers buying into? ie QAHC, Questus, Aspire, Ethan, etc??? A claim that "several lenders" will do 90% should be supported by some further facts.euro73 wrote:Who does 90% Richard? There's not one single lender with an official policy to 90% LVR. Westpac's( and St George and Rams) policy is 85%. Firstmac's is 80%. Bendigo Adelaide's is 80%. Of course, I know some deals are being done on a case by case basis, and Ive stated that several times in my posts, but Im posting information on the general lending policies in the market, – the policies that most investors will encounter.
If you got a few 90's done thats great – you must have good lender relationships and the clients were clearly strong… but who were the lenders, and which NRAS model were the customers buying into? ie QAHC, Questus, Aspire, Ethan, etc??? A claim that "several lenders" will do 90% should be supported by some further facts.Richard Im hoping you can provide some information about the lenders who do NRAS at 90%. The reason I ask is that QBE LMI wont accept NRAS, and Genworth LMI have only appoved a handful of NRAS Approved Participants models, those being QAHC, Ethan, Questus and UAHA. While Genworth has approved 90% for the NRAS models Ive listed, only Westpac, St G Rams and Firstmac have any official NRAS lending policy, and none of those lenders will do 90%LVR. I realise there are always exceptions, and NAB for example will take deals on a case by case basis… but I'd hoped you could share your 90% successes with us.
I would just like to say thanks to euro and Richard for your help.
Cheers
I run into a slight hiccup on Friday. My Broker rang and said Suncorp's policy will only account half of my commission to service the NRAS loan and because 50% of my salary is commission it means I fall short for serviceability. St George has pre approved 70% LVR and we are going for the remainder with my existing bank Suncorp.
My broker says we might have to refinance with another lender or extend my Suncorp LOC which currently is 100k (unused) He also said we could try for 90% LVR with LMI @ St George. I will cross my fingers and hope the wind is blowing in the right direction.
Cheers
Markymarko- I really believe its a mistake to allow your broker to "try" for 90% LVR with St George. Ive said this before and will say it again…. if the NRAS allocation belongs to one of the Approved Participants Ive talked about previously ( Ive attached the list below again), St George Westpac and Rams do 70% without LMI- 85% with LMI. None of them use the NRAS incentive for servicing. Firstmac does 80% without LMI and uses the full NRAS incentive as tax free income for servicing ( except for construction deals) Aside from case by case exceptions for extremely strong deals or extremely high net customers, those are the only official NRAS options at this time.
Seems like you need more than 70%, and servicing is a problem because of your commission income- although you didnt mention how long you'd been earning commissions…. but I think you should be calling firstmac. Dont let your broker "try" for 90% with St George. 85% is their max LVR for NRAS, and that's with LMI. Its pretty safe to assume that LMI policy on commission will be just as strict or stricter than Suncorp's, so chances are the answer will be NO- same as Suncorp. All you'll achieve is another enquiry on your CRAA and when STG more than likely says no to 90% you're probably going to be left with 3 CRAA enquiries within a week of each other ( Suncorp, St George and LMI), a second declined loan, and thats not a place you want to be.
NRAS finance is specialised. Everyone thinks they know how to get NRAS deals done, but it seems very few people do actually know. If your broker cant get commission income policy right with Suncorp…… well, lets just agree its a class 101 error, so the chances of the broker navigating an NRAS deal is probably questionable too… In this case, because of the LVR and servicing requirements- just call Firstmac. They wont take NRAS deals from brokers, but they will take them directly from customers so you'll need to visit their website and make an enquiry, or call them.Here's a refresher on the official lending options in the market. Now, there have been comments made by other brokers that other lenders will do 90% LVR- but no evidence/policy/examples of this have been forthcoming so far. I'm not disagreeing that 90% deals will be done for the right customer, but its very much by exception. and very much outside policy. So in the absence of any evidence of 90% NRAS lending existing with any lender in the marketplace, the guidelines below will serve you ( and any other forum readers) well….
Remember also, only Genworth LMI will accept NRAS deals- QBE LMI wont do NRAS, so again… the contention made by brokers on these forums that both insurers are OK with NRAS is questionable in my mind; but each to their own. I'm just telling you whats officially available so you don't ruin your CRAA by letting your broker try to fit a square peg into a round hole.
QAHC – Head Lease Agreement
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Questus – Non Entity Joint Venture via Managed Investment Scheme.
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Aspire – Non Entity Joint Venture
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRASYarran Group – Non Entity Joint Venture.
Westpac, St G and Rams. 70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.UAHA – Non Entity Joint Venture
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Ethan Affordable Housing – Non Entity Joint Venture
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.
Bendigo Adelaide – 80% LVR without LMI. They use 65% Gross Rental for servicing and they do NOT use the NRAS incentive for servicing.Affordable Management Corporation
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.Accelerated Wealth Systems ( Quantum )
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing. They have the best borrowing capacity by far, for NRAS.quick update… saw NRAS being discussed on Your Money Your Call a few days back- where the NRAS proponent spoke in very broad (and inaccurate) terms about NRAS. Amazing. She said that loan applications are presented to banks just like any normal investment property application, so loans were easy to find for NRAS.
I wont name her, because she deserves the benefit of the doubt and rather than proposing that people commit fraud by failing to disclose NRAS, she may have meant that the paperwork required was the same, but I do think she should have been clear about the finance limitations, the LVR limitations and the fact that rental income from NRAS properties is assessed much differently by lenders.
If you apply for 90% finance and present an NRAS property as a standard investment property- you are committing fraud. The rental income that a bank is using to assess your borrowing capacity is false, and you are signing a declaration saying it is accurate and correct. If its a broker deal, they are also being fraudulent, and the responsible lending guidelines that non banks have been observing since July 2010 and which banks are now required to observe from Jan 1, make that so.
Also, if the loan ever goes into default/delinquency- a lenders right to repossess and dispose of the security is hindered by some of the NRAS third party agreement models – so if you havent disclosed its an NRAS deal, and the lender isnt aware of the restrictions – they'll come after you.
Until an NRAS deal (which hasnt been disclosed as NRAS) goes into default and a bank hits this problem, it wont come up- but someone will default at some point, and it will be revealed. Then the banks will audit every deal in that development- if there are other NRAS deals in there and they haven't been disclosed- watch out. Then theres the Mortgage Insurers- you'll be black listed for years. You'll be banned from being able to get LMI on a deal for years.
Dont be fooled by a broker or a property spruiker that NRAS is simple- just because a COS for an NRAS property doesnt mention NRAS. To proceed that way is to proceed on a fraudulent basis because you are falsely declaring the rental income. NRAS lending is specialised and its limited. See my earlier posts, and stay within those parameters. Do it with full disclosure and dont risk it.
You bet they did. Certainly not the case. Might be more beneficial for the financier but wont be for you.
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