Morning All,
I have come away from an appointment with a lender and I'm still trying to get my head around a Home Equity Loan with a Line of Credit for a new PPR (currently renting).
This is the working example:
Property Value: $400,000
Deposit: $80,000
Balance: $320,000
Now this is where the confusion sets in, I'm lead to believe that the $320,000 can be split for example 80% / 20%.
Variable Loan 80%: $256,000
Line of Credit (interest only) 20%: $64,000
Can I draw on the Line of Credit or is it already at its limit?
Am I better off having a 60% / 40% ratio and thereby decreasing my Principal and Interest repayments?
I am of the understanding that the Line of Credit is for an infinite time frame on the property if desired.
What if any strategies should be applied if I follow this route?
Any other assistance would be greatly appreciated. I will obviously be quizzing the lender again but I would like to go in again as informed as possible.
Hi there
Just so I have a better understanding of what you're aiming to do.
1. What is your current PPOR worth?
2. Are you looking to purchase a $400k IP?
3. Which lender are you currently with?
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]
Are the above numbers on the property you currently own?
How much is the debt currently owing on your existing property?
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi Jamie,
Thanks for your reply.
1. We don't own a property.
2. We are looking to purchase a PPOR valued at 400k, we would put in a 20% deposit.
3. We are not currently with a lender have just spoken to Bendigo Bank about their Home Equity Loan.
The reason this product may have been suggested to us is that we would like to start another business in the not too distant future, and the line of credit would be a better option then attempting to apply for a Business Loan at Business Loan rates.
Thanks again.
Afternoon Shahin,
No these numbers are for a property we would like to buy, we are currently renting and have no outstanding mortgages.
I have posted a reply to Jamie's questions, which contain other details as well.
Appreciate your time.
BomberRoui wrote:Hi Jamie,Thanks for your reply.
1. We don't own a property.
2. We are looking to purchase a PPOR valued at 400k, we would put in a 20% deposit.
3. We are not currently with a lender have just spoken to Bendigo Bank about their Home Equity Loan.
The reason this product may have been suggested to us is that we would like to start another business in the not too distant future, and the line of credit would be a better option then attempting to apply for a Business Loan at Business Loan rates.
Thanks again.
Hiya
You'll prob want to split out home loan and business debt – so having the one LOC facility against your home doesn't sound ideal….and it will be more expensive than other options.
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]
You also need to factor stamp duty, legal fees and building and pest inspection fees. These will equate to about 5% – so if you are aiming for an 80% LVR then you need to have around 25% deposit.
The only thing I don't get is why not go for 95% or 90% LVR loan and use less deposit. Less its LMI – but often cash is king.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Thanks for your feedback Jamie, it's really appreciated.
I agree entirely we. We have the extra 5% covered.
Due to our current employment situation, I.e casual we are only being offered the 80%. This situation may change and I'm with you I'd rather use the banks money.
With the Equity Home Loan, I imagine if I have less than 20% equity this type of loan would not be available? I think it's an interesting option as long as the Line of Credit has a zero balance and I use the account as outlined in this link.
http://m.wikihow.com/Follow-the-Mortgage-Accelerator-Plus-Program
However the jury is still out for me and I'll possibly look at an offset arrangement.
Thanks again Shahin.
BomberRoui wrote:Morning All,I have come away from an appointment with a lender and I'm still trying to get my head around a Home Equity Loan with a Line of Credit for a new PPR (currently renting).
This is the working example:
Property Value: $400,000
Deposit: $80,000
Balance: $320,000
Now this is where the confusion sets in, I'm lead to believe that the $320,000 can be split for example 80% / 20%.
Variable Loan 80%: $256,000
Line of Credit (interest only) 20%: $64,000
Can I draw on the Line of Credit or is it already at its limit?
Am I better off having a 60% / 40% ratio and thereby decreasing my Principal and Interest repayments?
I am of the understanding that the Line of Credit is for an infinite time frame on the property if desired.
What if any strategies should be applied if I follow this route?
Any other assistance would be greatly appreciated. I will obviously be quizzing the lender again but I would like to go in again as informed as possible.
I was going to write "i would strongly recommend against this set up" but then seen you want to use the LOC for business later on.
In this case I would only suggest this if you are able to fully pay off the LOC before using it for any business related purposes.
I think a better way would be to set up a PI loan with a 100% offset. Pay minimum and then before you start the business then pay down the loan and apply for a LOC. This will give you flexibilty if you don't go ahead and won't cause any adverse tax issues. Your property would also have grown in value and you could get more LOC possibly.
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 agree, at least with what you have outlined I still have flexibility and options and can come back to the LOC option when and if required.
I appreciate you insight. Cheers.
Morning Terry,
When you speak of adverse tax implications what could be the issues?
Is it the actually use of LOC from a PPOR for Business purposes, does it complicate things?
Or does the issue arise if we needed to sell the PPOR and the implications of having used the LOC for the Business?
I understand that going into specifics is difficult and would require an understanding of the individual's situation.
Thanks.
Morning,
I'm wondering now whether setting up an 100% offset is perhaps the best path?
Would the benefit be in paying all my income into the variable loan and then using a 40 day interest free credit card for daily purchases.
Then from the offset account paying the credit card?
or paying all income into the offset, and then paying for the PI variable loan and credit card from the offset when it falls due?
This is for PPOR.
BomberRoui wrote:Thanks Terry,I agree, at least with what you have outlined I still have flexibility and options and can come back to the LOC option when and if required.
I appreciate you insight. Cheers.
Several
1. You could end up with a mixed purpose loan = messy and more tax
2. If you ever moved out and rented the property it would be hard to work out how much interest you could claim. Could be a high loan still with no interest deductible.
3. higher rates on LOC too
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
BomberRoui wrote:Morning,I'm wondering now whether setting up an 100% offset is perhaps the best path?
Would the benefit be in paying all my income into the variable loan and then using a 40 day interest free credit card for daily purchases.
Then from the offset account paying the credit card?
or paying all income into the offset, and then paying for the PI variable loan and credit card from the offset when it falls due?
This is for PPOR.
Best to pay in the offset (as long as you are not tempted to spend).
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
Terryw wrote:Best to pay in the offset (as long as you are not tempted to spend).+1 I whole heartily agree
Modernity Investing
Email MeThanks Terry.
Thanks Mark.
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