We are about to use equity out of our PPOR as a deposit to purchase an investment property. We have approached our current non-bank lender, and now a broker. Both have wanted us to use our current house as collateral against the investment property.
Everything I have been taught about investing says not to do this, why is there so much resistance on the part of lenders to give us separate loans?
Should we just go with the cross collateralise loan option? The broker has said that as an alternative we can take out an investment loan against our PPOR for the value of the deposit, then a second loan for the remainder of the cost of the investment property.Your intuition was right – the bank and broker are definitely being lazy at the expense of your structure/strategy/protection.
Best thing to do is set these up separately, with an equity release on the PPOR solely to cover the deposit costs and government charges and then a second application for a loan for the remaining purchase amount attached solely to the new purchase. The only reason why either party would suggest against this is because they can’t be bothered completing two sets of forms.
Depending how much equity is available, it could be a good time to even setup further equity funds from the PPOR if available, so that way the funds are sitting ready and waiting if/when you want to make any further purchases – I generally do this for clients so they can hit the ground running with any further purchases. I’ve written about structuring property purchase deposits before on our blog.
Hope this explains it – if you need any help let me know.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Thanks Corey,
That is what we thought. We will go back and insist on the two loans.Hi Citrus
As Corey says.
If you get resistance from either the Broker or lender it will be a combination of lack of knowledge / experience or pure laziness.Alternative is to try another broker / banker.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Should we just go with the cross collateralise loan option?
Nope.
Best to keep the loans uncrossed.
It’s easy to do. Assuming you have one PPOR and are looking to purchase one IP. The structure is pretty much:
PPOR
Loan 1: Current mortgage
Loan 2: Equity release to cover 20% deposit and stamp duty on IPIP
Loan 3: Investment loan to cover remaining 80% against IP (deposit comes from loan 2 above)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]
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