Can someone please explain how not to cross-collaterise whilst still using the equity from my PPOR? Does it mean I have 3 loans? Sorry just not understanding the other posts I've read on this issue. My PPOR loan is currently a fixed P&I loan.
Hi Lila
You set up a second loan against your PPOR which is used as the deposit/costs on your IP.
A separate loan for the remaining amount is then set-up.
So you end up with three loans.
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]
Ok. So this is why interest only is better? As the interest repayments on one loan for $300,000 is going to be the same as 2 loans for $100,000 & $200,000 vs paying P&I which would be about $350/month higher (using ~7% interest) with the 2 loans scenario.
Now I'm starting to understand the financing I just have to find the IP (I think that's going to be the hardest part but also the most exciting bit).
Is it better to borrow up to 80% on my PPOR then borrow the remainder against the IP OR borrow 80% on the IP and the remainder on my PPOR (or doesn't it really matter)?
Thanks Jamie.Lila
The reason being is that the interest on the investment loan is Tax deductible irrespective of the security which it is secured against so you want to try and maximum your deductible debt and minimise your non deductible debt.
Even if your PPOR loan repaid you would probably be better off taking interest only with 100% offset account on the subloan secured against your PPOR and interest only on the standalone loan secured against the IP itself.
I would always try and go for 80% on the IP subject to your available equity or investing goals.
Many clients wish to maximise their borrowings and therefore happy to take the loan upto 90% and use less of their PPOR equity so they can buy again.
We will also suggest once the IP has increased in value you get it revalued and then redraw back upto 80 / 90% of the increased valuation and pay down the sub loan secured against your PPOR.
These funds can then be re-used for the next Investment property or just left to sit there.
There are some excellent base rate investment loans out there at the moment which are ideal for investors.
Hope this makes sense.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard, yes all makes sense. Just one question about the redraw once IP has value increase: Is this new draw down tax deducitble (it is new borrowings afterall)?
Now I'm off to try and find the right property!Redraw is treated as new borrowings. Deductibility will depend on what the funds are used for.
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
lila
Before you looking for the property i would personally get the sub loan or refinance going as often this can be the bit of the equasion
that slows down the process.We always try and do this part for clients upfront so they have the structure set up correctly and funds available so when they find somewhere there is no delay.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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