Hi,
I have a 95% LVR loan on my current PPOR that I will be renting out in 5 months time and I’m preparing for another loan for my next purchase. I’ve been told for the first couple purchases it is better off getting loans in personal names that aren’t secured against each over – is this what you would recommend?
Yes thats true. At 95% LVR you probably couldn't cross collateralise them anyway.
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
95% Is the pretty much the max lend on a residential ppty in mainstream lending channels. Be mindful that a 95% lend is a lot harder to get these days than in previous years. A 90% lend is a better LVR as it opens up the spectrum of loan products across all lenders so if you can get in there it will be a better all round result for you.
There are schools of thought with cross securitising, one saves money but creates servcing restrictions and obviously all securities are tied, the other costs a little more each transaction but can ensure you maintain stronger servcinging results when arranging finance. It also means that an individual lender only has the single security to fall back on. the biggest thing with splitting funders is knowing where to go to maximise your servicing criteria.
Feel free to drop your email if you want to discuss in a little more detail.
Regards
Sorry if this sounds noobish (which i am!), but what does it mean when a property is secured by other properties? I've got a PPOR atm but looking to buy an IP and using the equity in my PPOR to finance the purchase of the IP. Any info/advise would help. Sorry to hijack the thread!
Thanks.
eg.
Your PPOR is valued at $500,000 but your loan only $200,000.
You buy an investment for $500,000 and borrow $520,000 using this property and your PPOR as security. (not good!)
A better way would be:
PPOR
Loan 1 $200,000
Loan 2 $120,000IP
Loan 1 $400,00(deposit and costs for IP come from loan 2 on the PPOR. Interest on loan 2 will be deductible and both PPOR and IP are not secured by each other which is safer)
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 for the advice. I'm still abit confused on the example of using your PPOR as security? What does it mean to use both the places as securites against each other?
I understand the second part, and I think this is the way which my broker told me to go. Here is my situation. My PPOR is roughly valued at $550k, i have a loan of $320k, that is an equity of $230k. If i buy an IP for $300k, i was going to use the $230k equity to use as deposit. My broker told me that we can use Line of credit, where we only draw out what we need for the deposit. Say i put a 10% deposit, i would draw out $30k + $15k (stamp duty) from the $230k equity. Then borrow 90% LVR + LMI to finance the IP. Is that what most people do? Did i explain that right?
Thanks.
Yep, that is almost right.
Your property is valued at $550,000. the maximum loan is usually only 80%.
$550,000 x 80% = $440,000 = max loanYou have already borrowed $320k so your max LOC would be $440k – $320k = $120,000
If you get this as a LOC then you only pay interest on the amount drawn dawn.
When you put the 10% deposit down you take it from the LOC and borrow the rest from the same or another lender.
Most people do it the other way, the crossing of securities, but this is not a good idea.
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:If you get this as a LOC then you only pay interest on the amount drawn dawn.When you put the 10% deposit down you take it from the LOC and borrow the rest from the same or another lender.
Most people do it the other way, the crossing of securities, but this is not a good idea.
Terry, I totally forgot about the fact that i was only allowed $120k, thanks for reminding me.
When you said that i will only pay interest on the amount drawn down, what does that mean. Does that mean that my loan will go up from $320 + $30k (10% deposit) to $350k? Or will the interest of that 10% be part of my repayments for the second loan?Also, if you dont mind, can you please explain what the other method is? The crossing of securities?
Thanks
Your existing loan is separate, so that won't change.
The LOC will have a limit of $120,000 but a balance of nil initially. When you take out $30,000 you will only pay interest on this amount. this would be loan 2 as described above.
The other way is
$320,000 existing loan secured by house.
loan of 105% of the new purchase price secured by this property and your house. ie 2 securities for one loan = cross collateralised loan.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:eg.Your PPOR is valued at $500,000 but your loan only $200,000.
You buy an investment for $500,000 and borrow $520,000 using this property and your PPOR as security. (not good!)
A better way would be:
PPOR
Loan 1 $200,000
Loan 2 $120,000IP
Loan 1 $400,00(deposit and costs for IP come from loan 2 on the PPOR. Interest on loan 2 will be deductible and both PPOR and IP are not secured by each other which is safer)
Thanks for helping me understand this, your example really made something ‘click’ in my mind.
Thank you so much, i'm learning so much lately!!
Terryw wrote:Your existing loan is separate, so that won't change.The LOC will have a limit of $120,000 but a balance of nil initially. When you take out $30,000 you will only pay interest on this amount. this would be loan 2 as described above.
The other way is
$320,000 existing loan secured by house.
loan of 105% of the new purchase price secured by this property and your house. ie 2 securities for one loan = cross collateralised loan.So i guess with this cross collateralisd loan, does that mean that if you cant repay your mortgage, the bank can take away both huoses from you?
Yes they can take both or either.
Even if you don't cross them they can eventually get the other one, but it takes longer.
The main reason not to cross is the loss of flexibility.
say you had two properties crossed, securing one loan. Both had dropped in value so you decide to sell one. The bank can say to you that they will only release the sold property if you pay down the loan on the remain property by $x. If the one you had sold has dropped you may not have the cash to pay down the loan. This happened to a colleague of mine.
If they were not crossed you woudn't have the problem because the bank would not need to value the remaining property.
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
Now i'm starting to understand it more.!!
I was just wondering, would the bank say that because they are afraid that you might default on the other home loan?Banks have to revalue to release a security and the remaining security must be within their LVR guidelines. If they don't have enough security then they could be in trouble.
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
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