We Have 2 IPs, both with IO loans with the CBA with me (husband) as trustee of our Family Trust as Mortgagee and my wife as Guarantor.
We're looking at another IP (say worth $500,000) and wish to avoid Investment Loan Insurance again.
As we can't pay cash for the 20% deposit this time, we're looking at using the equity in our PPOR (unit worth $300,000 owned freehold) for:
. one separate loan of 20% deposit plus costs ($100,000 +$25,000) secured by our PPOR only, and
. another separate loan for the remaining 80% ($400,000) secured by the new investment property only.This strategy was advocated by Stuart Wemyss in his article "Cross Securitisation: Don't get locked in." in API issue 65 of July 2007 and subsequently referred to again in reply to forum question "X Collateralising" on March 16, 2007.
The bank (CBA) suggested "If you are prepared to put the unit up as security, you should do a 100% of the purchase price plus fees in one loan" and "…need to take out a mortgage against the unit". We see this as cross-securitisation which we are dead against! Do you agree?
Furthermore, the CBA has also thrown us a curve ball by now insisting on my wife being included as an Applicant on the Application rather than a Guarantor, as the "policy doesn't support Servicing Guarantors anymore"! We think that this has tax implications (and maybe other implications) and are about to seek our Accountant's advice. Before we do this, I'd appreciate any comments from the experts on this forum.
Is a mortgage against the unit (PPOR) the only option? Could there be better options? For example, could "secured by the PPOR" take the form of a Letter of Credit (LOC) on the available 80% of the unit's valuation? This would free up the balance of the unit's equity for a future deposit on another IP.
We were helped before by the generous people on this forum and very grateful for that.
giant45 wrote:The bank (CBA) suggested "If you are prepared to put the unit up as security, you should do a 100% of the purchase price plus fees in one loan" and "…need to take out a mortgage against the unit". We see this as cross-securitisation which we are dead against! Do you agree?Typical response from a lazy banker. They can't be bothered structuring the deal properly to your benefit. They just want to write the one loan and throw both properties in as collateral. I have no idea why you'd need to pay mortgage insurance – the LVR would be pretty low.
The structure you outlined is how I'd do it.
giant45 wrote:Furthermore, the CBA has also thrown us a curve ball by now insisting on my wife being included as an Applicant on the Application rather than a Guarantor, as the "policy doesn't support Servicing Guarantors anymore"! We think that this has tax implications (and maybe other implications) and are about to seek our Accountant's advice. Before we do this, I'd appreciate any comments from the experts on this forum.I'm not sure about that one. Issues like this can arise when properties are owned under different entities – banks do change policies.
giant45 wrote:Is a mortgage against the unit (PPOR) the only option? Could there be better options? For example, could "secured by the PPOR" take the form of a Letter of Credit (LOC) on the available 80% of the unit's valuation? This would free up the balance of the unit's equity for a future deposit on another IP.I honestly can't see why the deal can't be structured in the way you've proposed. Did they give you the blank stare? It tends to happen in the branches.
I was in a branch not that long ago to change something with an account. The banker got excited when he saw I had a few loans with them and his first suggestion was to consolidate a non-deductible and a deductible debt so it was "less messy"! I questioned his logic given that one loan was for investment purposes and the other wasn't – all I got in return was the blank stare.
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]
dontcross your securities as it gives no advantage to you but benefits the bank heaps.
hy are you wanting to put wife down anyway
. is your income not enough to service? you should avoid this where possible.
should be no tax issues with adding her on the loan thoughTerryw | 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 Jamie and Terry (nice to hear from you again Terry)
We won't be cross-collateralising, but am still interested in comments regarding the implications of having my wife as co-applicant with me (as trustee of our family trust).
My income is limited but I think the bank sees it as insufficient should the IP become unrented or the rent be substantially reduced for some reason. My wife being Guarantor on our other 2 IPs was seen as a necessary evil but now they want her as a joint applicant. BTW the intended IP will be cashflow positive.
Are we in a position to call their bluff and threaten to go elsewhere if they don't make a "policy exception" and accept her as a Guarantor in lieu of a joint applicant?
Have you a comment please Richard?
Regards
Peter
Hi Peter
Sorry been flat out so havent had as much time as i would like to visit the forum and answer posts.
As Terry mentioned wont be any Tax issues having her as Co-borrower or Guarantor as this dictated by the Title ownership and not the loan. Like the CBA many lenders are going the route that they wont allow a Guarantor to increase income and therefore insisting on the co-borrower arrangement.
Personally unless it is a must i am not sure i would be putting her in such a position.
Have you looked at alternative lending options as each lender has a varied serviceability model. CBA would have to be in the bottom quartile when it comes to serviceability.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
best to speak with a broker i think and see if u can do it withiut the wife
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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