Hi,
I am new to this forum and also first time going to buy investment property. I need some advice regarding structuring my loan.
This year I want to purchase two investment properties $400,000 each. I want to purchase one IP with cash available in Offset account($ 80,000) and another IP by using equity + cash if required.
I have PPOL value $ 650,000 and outstanding loan is $ 480,000. So I have $ 40,000 available equity without LMI.My current mortgage provider told me to Cross Collateral to purchase new loan. He said that by doing this you save interest because you not refinancing your existing loan. Bank will use your home as security and but you will save interest on $40,000.
If you refinance than you PPOL loan will go up and your will repayment will go up. But if you cross collateral than your PPOL Loan will stay at current level and bank will use your house at security.
I read on internet and most of the articles are not recommending the cross loan.
I am thinking of refinancing the PPOL Loan $ 520,000 (Loan 1), Cash out Equity $ 40,000 and set up new loan (Loan 2) and purchase investment property (Loan 3). By this way both property will be stand alone.
What should I do????
Who ever is providing you with that advice has no idea what they’re talking about.
1. don’t use the offset account funds if its against your PPOR. Pay the offset funds into your PPOR loan, reducing your non deductible debt.
2. THEN have a separate equity access loan setup to provide the deposits for the two investment properties. This will maximise your deductions and minimise your non deductible debt + interest.
This will allow you to avoid cross collateralisation as well as provide you with the most tax effective + cash flow effective structure.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Hi parreels
Good thing you stumbled acrross this forum – whoever suggested that structure doesn’t have a clue.
Corey’s on the money. Inject funds from your offset into the loan and reborrow to fund the deposit/costs on your IPs then set up stand alone loans for each property.
If in doubt – get a decent finance person to sort it out 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]
Hi Corey,
Can you please explain it to me with example if possible.
Details below Offset – $80,000, Loan at PPOR 486,000 and Market Value is $650,000. IP loan required two x $ 400,000.
I was under impression that if I over pay my mortgage at PPOR and convert my home to IP in future whole loan will not be tax deductable. I have intension to convert my PPOR into investment in future.
Appreicate your time and efforts.
Thanks
If you are intending to convert the PPOR into an IP in the future the benefit is less great, but you will still have increased deductions in the meantime. The offset funds will either be injected into PPOR (future IP) or used for the IP deposit – in either case the funds are not being used for the next PPOR purchase which is the true benefit of not paying down interim PPOR’s.
With this being the case I’d still structure as follows after paying the 80k into the PPOR:
PPOR Loan: $406,000
Equity Access: $114,000 (bringing the PPOR ratio up to 80%)This will provide sufficient funds for two ~90% LVR 400k purchases.
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This reply was modified 9 years, 10 months ago by
Corey Batt.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thank you Corey,
Your comments made perfect sense. Thanks for explaining in simple term.
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This reply was modified 9 years, 10 months ago by
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