Hi all,
I want to unlock the equity in my PPOR to fund the deposit and closing costs for my first IP. The remaining loan would be funded through another bank. As many on the forum have suggested.
Currently my PPOR is on a fixed rate with less than 2years remaining on that product. It has an offset account for my wages but in order to get access to the equity I have to do something. So, I rang the bank and they gave me 3 options.
Since you guys have a lot of creative insight I am happy to divulge this information to you for some feedback. Option 1 does not interest me, as it is way too expensive. I like option 3 (it simply creates a separate LOC). But is there any advantage in option 2 or does that “cross the streams” as a headache for working out interest only repayments and future taxation headaches.
1. Restructure the existing home loan into a line of credit
• application, valuation and administration fees = $695
• Early Payout Fee $7191 (subject to change daily)
• Interest rate would be 6.75% p.a.
• End result would be a line of credit for $230K
2. Switch the loan to an interest only product
• switch fee would be $300
• No early payout fee
• Interest rate would be the same at 6.69% p.a.
• End result would be the current home loan would remain unchanged except the payments on it would be interest only
3. If you wanted additional funds of $44K we could open a line of credit for you
• application, valuation and administration fees = $695
• No early payout fee
• Interest rate on the new line of credit would be 6.75% p.a. and the existing loan would still be 6.69% p.a.
End result would be a line of credit for $44K and the current home loan remains unchanged
Apologies for the length but I hope enough info is there for an avid discussion.
Thanks,
Fox House
Avoid 1 because of the tax issues – very dangerous.
2. Is ok, but is a separate issue. You would need to consider in conjunction with 3.
3. Is the way to go, ie a separate loan for the equity extraction. The rates are high 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
Hi Foxhouse,
Why are you funding the second loan with a separate bank? Is the decision rate based, or another reason?
You need to certainly open a separate facility against your PPOR but why are opening a line of credit and not a standard Variable or Fixed product?
Sorry one thing – not sure why the lender is offering you those rates but they seem quite high.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Which lender is this with?
How much is your current loan?
What is the estimate purchase price of your IP?
Option 3 sounds like your best option – but hard to comment on the info provided on whether a new lender for your IP is best.
Why they would even suggest option 1 is beyond me…..
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]
Go for number 3. That's my personal opinion. It's the one with the least amount of hassle, and you still get to achieve your outcomes of getting more equity for deposits.
Although as you mentioned, seems like you'll be able to only tap into about $44K. There are bargain properties that you could buy with that amount for deposit money, but do you have any other cash for deposit money? How much were you planning to spend for your first IP – as in, what was the price range of your intended IPs?
Being your locked in I would probably go with 3 if I were in the situation.
This is one of the major reasons why I'm not a fan of long term fixed rates. Peoples circumstances always change and it creates huge headaches down the track when loans need to be accessed/changed for one reason or another.
In your circumstance, like others have said, option 3 is the best even if it is above market rates.
What I want to avoid is cross securitisation. Using the equity in my PPOR to facilitate the purchasing costs and deposit for IP only and any other IP related expenses. Doesn't that help me at tax time? Keep the streams separate for accounting and taxation purposes.
I don't understand your comment,
"You need to certainly open a separate facility against your PPOR but why are opening a line of credit and not a standard Variable or Fixed product?"
Could you elaborate further on this?
Thanks
This is why I am saying that you can set up a seperate loan against your PPOR (this is not cross securitising) and this loan should be either a fixed or variable loan but not a line of credit (for what you are doing). This way the interest is not cross contaminated when your accountant does your tax. The interest is caulcated against this single facility that is located against your PPOR and of course the facility against your IP. Again this is not x-securitising. Does this answer the question?
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Jamie M wrote:Which lender is this with?How much is your current loan?
What is the estimate purchase price of your IP?
Option 3 sounds like your best option – but hard to comment on the info provided on whether a new lender for your IP is best.
Why they would even suggest option 1 is beyond me…..
Cheers
Jamie
This was just an enquiry to CUA to find out what options I had available to me. $220k is remaining on loan. I've paid down $30k.
Change my circumstances did. At the time pre (GFC) a fixed rate gave me the security to budget what money we had. It seemed every time I blinked the rate had moved north. The decision to fix was based on a presumption, "What if?" Never thought that it would happen but "What if?" did happen 6 months into the loan. So be mindful, security has a place. There are no crystal balls nor guarantees in life but budgeting and planning can mitigate the fallout from such scenarios.
Apologies for the ramble.
Agree with the most of experts and if i was in your shoe then i will go for Option 3
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