Hi all,
I am beginner in property investing.
Always interested in learning existing methods, new methods , innovative approaches etc.Currently we have 1 PPOR & 1 Investment property cross securitised.
We are planning for the 2 nd IP soon.
I have heard lot of things regarding de-securitising the properties etc.
I understand that it is OK to cross securitise your 1 st or 2 nd IP.
One can de-securitise later. Is it sensible?I need to understand the pros and cons of de-securitising.
Any clear information on this topic is most welcome especially focused on maintaining and growing IP portfolio.
My queries are below-
1. What are the advantages & disadvantages of cross securisting ? When to cross securitise?
2. What are the advantages & disadvantages of de-securitising ? When to de-securitise? Any extra costs involved in de-securitising as compared with cross securitising option?
Thanks in advance.
Regards,
WCMy opinion only, but…
The advantage of cross securitizing is to your bank. The disadvantage is to you.
The only reason to cross securitize is if it can be done no other wayThe advantage of de-seciritizing is flexibility – you can sell an uncrossed property when you want/need to, rather than having to have all properties in the "cross" valued, and you having to provide financial details – again – to prove you can still service any remaining loan.
The disadvantage is time (it can take weeks to discharge a mortgage) and money – in break fees, if applicable, and legal costs.Hi Wealth
Shoot me an email and i will send you back an article i wrote some years ago for one of the property magazines on my 10 reasons why you would not cross collateralise securities.
As Swampy has mentioned only benefit is for your lender.
Seem to spend most of my life at the moment restructuring loans for clients where their own Bank Xrossed the loans only to refuse further borrowing when the client most needed it.
Cheers
Yours in Finance.
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Seem to spend most of my life at the moment restructuring loans for clients where their own Bank Xrossed the loans only to refuse further borrowing when the client most needed it.and it aint fun
I can’t remember who said it but the quote “it isn’t a problem until it becomes a problem” is fitting for cross collaterisation. Everything might seem fine – until:
– you sell one property and the bank dictates where the sale proceeds go; or
– you go to access equity and you have to have all properties revalued (what happens when one isn’t performing?); or
– the bank say’s no more loans (because you’ve reached their max exposure levels)This is just a few reasons off the top of my head. Richard’s paper will identify many more issues.
Besides, why give the bank more security than they need? It’s great for them – not so good for you.
Cheers
Jamie
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]
Out of 10 ppl who cross…5 of them will not have any issues at all with crossing and they live a happy life and havea great relationship with their bank…HOWEVER the another 5 suffer and complain about crossing…why?
If you decide you wanted to sell one of your property- all the property that are crossed to that property need to be “uncross” first before you can sell….all good so far; but what happens if the property market is done and all the value has decreased? ( ie today’s market) – you will start paying LMI again…
LMI? that’s ok- 4k? 5k? no problem….
BUT1. If you have no job OR recently changed – hence why you might be selling??? the LMI provider would reject your application to go above the 80% ..and your stuck back at base 1- yes in this situation the bank would try to work something out…but it’s doesn’t always happen.
Bank – 1 You – 0Sorry WC, got carry away, had a long week arguing/ dealing with the 19 -20year credit mangers…and it’s only Tuesday lol
It’s ALWAYS a good time to uncross – as long as your property has gone up in value and it goes below the 80% LVR on it’s own merits- then it’s all good.
Cost – $200-$350 ( valuation cost)It’s a good idea to get a rough valuation first ie RP data/ look at the market and then you can sort of work out if the value has gone up or remained the same etc…
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Heh Jamie
That quote is mine from circa 2002.
I am sure i copyrighted it at the time.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Heh JamieThat quote is mine from circa 2002.
I am sure i copyrighted it at the time.
Cheers
Yours in Finance
Haha, it’s brilliant. Every broker and his dog throws that phrase around these days.
Cheers
Jamie
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]
Funnily it was my dog that came up with it.
He is not with us anymore so wont try and claim the royalities.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
That’s a clever dog. The most profound thing my pugs muster up are grunts, snorts and farts.
Cheers
Jamie
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]
Yes he was bloody good for a retriever answered the phone, took message and corrected my spelling mistakes.
Couldnt retrieve a stick to save his skin and well ball games were too much like hard work.
Cheers'
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi all,
Thank you very much for your inputs.
Apologies for a late reply.
I was busy planning for our 2 nd Investment Property(IP).
Update.
I am in the process of purchasing one.I will not cross securitise. I do not intend to sell but I guess main reason is to have better access to equity.
And the method I am advised is to –
1. Put IP deposit amount from the offset into home loan which is Principle Place of Residence(PPOR).
2. Then re-draw the amount and spilt the home loan into 2 parts 1. Line of credit and 2. remaining home loan.
3. Use the line of credit for IP deposit, thus create a tax deductible investment debt for 2 nd IP.
I am not sure how this method works.Any experience with such methods ?
Any inputs appreciated.
Thank you in advance.
Regards,
WCHi WC
Agree with above however try and not use the word Redraw as that is totally different as has been explained.
Might want to consider a separate lender for the new IP loan.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks, Richard.
Yes, it will be a new lender for the new loan.
Instead of “Re-Draw” what is the appropriate word?
Is this kind of Split loan called Line of credit home loan or equity home loan ? Or some other name?
Any online information about these kind of loans ? I am happy to look up if I know what this thing is called in Bank’s language.
Any idea how much time banks take for the Split loan application ?
First, I am trying to settle the home loan with the new lender and take do the Spilt loan application with old lender.
Is this making sense?I am planning to time this along with the settlement date which is about 4 weeks from now.
Cheers,
WCwealthcreation wrote:Thanks, Richard. Yes, it will be a new lender for the new loan. Instead of "Re-Draw" what is the appropriate word? Is this kind of Split loan called Line of credit home loan or equity home loan ? Or some other name? Any online information about these kind of loans ? I am happy to look up if I know what this thing is called in Bank's language. Any idea how much time banks take for the Split loan application ? First, I am trying to settle the home loan with the new lender and take do the Spilt loan application with old lender. Is this making sense? I am planning to time this along with the settlement date which is about 4 weeks from now. Cheers, WCHi WC
Why not save yourself the hassle and just get in touch with Richard who will structure it correctly for you. You have nothing to lose.
Cheers
Jamie
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 WC
Dont fancy your chances on that timing depending on who the PPOR loan is with.
Your new lender will not approve the finance until they have evidence of the deposit funds and you cant provide them with this until the existing lender has approved the increase loan.
Then you have documentation etc and have to settle.
As i say depending on who the current loan is with will determine on what can be done in what timeframe.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks.
So far I have understood the following steps from Richard’s response –
1. Set up line of credit(LOC) with existing lender
2. After LOC is approved, use LOC for loan application with new lender
3. Demonstrate part of LOC as deposit towards next Investment with the new lenderHowever, in my case, the order of events is bit different.
I have already applied for the loan with new lender and demonstrated funds in off-set of my existing lender as evidence for deposit.
Therefore, in this case, I am doing the following steps –
1. Put IP deposit amount from the offset into home loan which is Principle Place of Residence(PPOR).
2. Then re-draw/recall the deposit amount and spilt the home loan into 2 parts 1. Line of credit and 2. remaining home loan.
3. Use the line of credit for IP deposit at the time of settlement, thus create a tax deductible investment debt for 2 nd IP.
Order is bit different. Is this sensible method to achieve the desired results ?
I hope so. ??? Or rather I would like to think so.
Any corrective inputs appreciated.Thanks.
Cheers,
WCwealthcreation wrote:Thanks.Therefore, in this case, I am doing the following steps –
1. Put IP deposit amount from the offset into home loan which is Principle Place of Residence(PPOR).
2. Then re-draw/recall the deposit amount and spilt the home loan into 2 parts 1. Line of credit and 2. remaining home loan.
3. Use the line of credit for IP deposit at the time of settlement, thus create a tax deductible investment debt for 2 nd IP.
Order is bit different. Is this sensible method to achieve the desired results ?
I hope so. ??? Or rather I would like to think so.
Any corrective inputs appreciated.Thanks.
Cheers,
WCVery messy, the funds are being mixed around and then separated again….your accountant/ATO is not going to like this. It’s like mixing 2L of clean clear water with 2L of muddy water and then later down the track separating it…still going to be muddy.
If you look at Richard’s way…at no times are the funds/deposit mixed.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Totally agree with you Michael but at the end of the day i am not doing WC Tax return lol.
All i would say is "Good Luck" and hope the ATO inspector is having a good day when he does the audit.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
wealthcreation wrote:Thanks. So far I have understood the following steps from Richard's response – 1. Set up line of credit(LOC) with existing lender 2. After LOC is approved, use LOC for loan application with new lender 3. Demonstrate part of LOC as deposit towards next Investment with the new lender However, in my case, the order of events is bit different. I have already applied for the loan with new lender and demonstrated funds in off-set of my existing lender as evidence for deposit. Therefore, in this case, I am doing the following steps – 1. Put IP deposit amount from the offset into home loan which is Principle Place of Residence(PPOR). 2. Then re-draw/recall the deposit amount and spilt the home loan into 2 parts 1. Line of credit and 2. remaining home loan. 3. Use the line of credit for IP deposit at the time of settlement, thus create a tax deductible investment debt for 2 nd IP. Order is bit different. Is this sensible method to achieve the desired results ? I hope so. ??? Or rather I would like to think so. Any corrective inputs appreciated. Thanks. Cheers, WCThe 10% deposit is usually paid on exchange. how did you pay this? If you reborrow to pay for an expense already paid for then the interest would not be deductible. If you borrowed to pay the deposit you may be ok though.
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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