Hi,
I am after some advise on loan structuring. I currently have a home loan of $320k split into 3 facilities $200k fixed, $70k variable and $50k offset. I have $50k in the offset as well. This was my PPOR but it is now an investment property. I am also looking at buying a house for $385k which I will live in for a while but eventually turn into an investment property. I believe both properties would be valued around $390k-$400k. My thought process is to switch the 1st property to I/O and use the equity for deposit on 2nd property which will also be I/O. As it stands I believe I would need LMI.
I would like to know am i heading down the right thought process and any advise/help on structuring would be greatly appreciated.
Yes, def IO.
I would try not to use the offset money if you can, try to borrow the lot and then move your cash with you to the second property's offset account to offset the interest while you are living there. Set up a LOC on the first one if you have the equity. And use this as deposit on the second avoiding cross colalteralising the two.
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
Thanks Terry
I am not sure what you mean with Line Of Credit? Why is it important to not cross collateralise.
Hiya
A line of credit is an equity loan set-up against the property.
Cross collaterisation is when the bank takes multiple properties to secure a debt – it's great for the bank, not so good for the customer.
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]
Many reasons why you shouldn’t cross collateralise. Similar to why you should not allow the bank to put your gonads in a vice.
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
haha – a lawyer that speaks plain english, I like it
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]
Lol Terry
Thanks Jamie
I was of the understanding that if you default on your loan the banks will come after you which is any assets you own not just the property you have with them.
Are you suggesting use another lender for property 2?
You can have two properties with the one lender and still keep them uncrossed.
There's more to cross coll then just making it more difficult for the banks to come after your properties – there's the dramas it creates down the track when you want to buy/sell property. With cross coll, the bank has greater control of your portfolio and can dictate terms.
In example – if you had a couple of properties that were cross collaterised and decided to sell one – then lender may ask you to use the proceeds to pay down the debt on the remaining property.
It can also be restrictive when accessing equity as multiple valuations are generally required.
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]
The bank can come after all your assets. But unmortgaged assets will take longer to take, I mean property not mortgaged to that bank relating to the loan in question.
But the real advantage is if you are in trouble you could sell one property and keep the other and use the cash released to get you out of trouble.
If you had 2 crossed properties you could sell one but only with the bank's permission as they would need to release the mortgage on the remaining property. To do this they would need a new valuation, perhpas new financials too and they may even require the money released from the sale come back into the loan of the remaining property. This could leave you up shit creek. Imagine if one property had dropped in value….
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
Thanks again guys, your knowledge is invaluable.
Had a new forum client ring me this week whose existing lender had crossed his PPOR and IP.
He had now sold his PPOR and the lender undertook a valuation on the IP which was to be their remaining security.
Unfortunately the Banks valuation came in at 45k less than he paid for the property only 14 months earlier.
Issue now arises that the Bank wanted him to reduce his investment loan by just under 70K.
Course this means he has now effectively lost the interest deductibility of 70K this year, next year and every other year and despite his Bank manager advising him that he should claim it anyway i had to tell him it how it was.
Thankfully we do have a way but of course his Bank didn't provide that option.
Structure it correctly from day 1 and you won't go to far wrong.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard
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