Hi
I have never used a mortgage broker cause I felt I could negotiate with the banks myself. However, since I am looking from my second IP, I am not sure whether I am structuring my loan properly and get better deals on the LVR side. Here is where I can see a mortgage broker can help me
My Current Status
PPOR: North Shore, NSW
Loan: HSBC $720,000
Value: $920,000
Offset: $51,000 + 28650(pay 10% for IP1) = 79,650IP1: Orange, NSW
Loan: 229,200 (settlement 29 March 2011) with Newcastle Permanent. HSBC wanted to cross collatarise my loans with 70% LVR. I said no way
Value: 286,500
Paid – Stamp duty and 10% paid. I also will pay the next from my OffsetFamily base income (excl Super): $221,000
We both (wife & me) Full time employedI am looking at IP2.
1) How do we structure our loan (trust etc.)? how much it will cost to setup and how complicated it is?
2) I dont have a lot of spare cash $51,000. Want to keep some cash for the rainy day. I heard some banks are offering higher LVR without LMI.
3) We usually save $3000 per month. However, I have booked a trip overseas in June which may cost $8000 to meet family. What is the price range of houses/units I can afford while keeping some cash for a rainy day.
4) In April, I plan do some reno in IP1 and get it revalued. The valuer (charge me around $500) will provide me a depreciation schedule. I am not from Orange hence will ask the valuer local to Orange about what renovation would increase the value of the house and likely rent I can ask. Do you think this is a good step or whats the alternative.Regards
Steve
—Hi steve,
There’s a lot of numbers there- i will have to sit down and work it out and post back later
– bur for now i will answer your 4 questions.1. Trust is quite simple- it’s similar to a company, but the pit fall is WHICH type of trust you want to open and What structure/how – this will have a huge bearing in term of your tax and financial objective – you will need to speak to a accountant/ financial planer for this part.
2. The high LVR has started to come back. 85% LVR – no LMI. Any LVR higher- LMI is payable, but depending on which lender you go with it can be reduced by 50%.
3. I will need to work out your above number to see what your serviceability looks like.
4. $500 is over priced for a valuer, it’s normally around $220 for a private valuer! can i ask whats the reason for getting a valuer? It sounds like your after a way to increase your rent-wouldn;t speaking to your agent who deals with this on a regular basis make more sense?
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Hi Steve
Welcome to the forum.
Keep that cash in the offset – it’s rainy day money as you’ve alluded to.
I’d look at tapping into some some of the equity in one of your properties to fund the next purchase. The PPOR is almost at 80% LVR so accessing equity is likely to incur some LMI. It looks like IP 1 will be similar (unless you add a fair bit of value). Personally, I don’t have an issue with paying LMI if it allows me to access the banks money (and allows me to keep my cash).
How much are you looking to spend on IP 2?
$500 for the depreciation schedule sounds fine – however, the valuation they provide won’t be accepted by the lender (they will want to carry out their own).
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]
Shape wrote:4. $500 is over priced for a valuer, it’s normally around $220 for a private valuer! can i ask whats the reason for getting a valuer? It sounds like your after a way to increase your rent-wouldn;t speaking to your agent who deals with this on a regular basis make more sense?I think he’s talking about a QS.
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]
Or refi that HSBC loan over to a lender that does 85% LVR without LMI – that way you can tap into some of that equity without paying LMI…..just another thought.
Those funds could be used as a deposit and purchasing costs on IP 2.
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]
well if that $500 for a depreciation schedule -That’s fine.
Paying LMI should not be a taboo, for some property investors ( like my self) they will use LMI as part of their wealth creation strategy; as it has some tax advantages+ ability to invest into another project faster (better cash flow) .
Im going to make a huge assumption here- since you can afford a mortgage of >$600,000 in north shore property + another IP purchase- your combine house hold income is relatively high- Having this IP at a higher LVR say at 85-90% LVR with the LMI capped into the loan may be beneficial in term of the interest deduction ( tax deduction) – This will free up a lot of cash for you to purchase your next IP + cash for Holiday and spare cash.The way i will structure this loan ( subject to serviceability) is what Jamie has mentioned; Refin your HSBC as a SPLIT loan ( this is a must) one split for the PPOR and another for IP-use this for the deposit/renovations/ Valuers cost – hence you are using your equity to finance the cost involved for the IP + the interest is tax deductible. Also loan will be done as a 100% offset for the PPOR part, with interest only for both splits.
Just one note on the trust, it will not give you any “personal ” tax advantage” – ie the lost or interest from the trust can not be claimed via your personal income.
The main benefit of a trust ( My assumption and answers are based on a discretionary trust) are;1. Asset Protection
2. Ability to stream incomes
3. Taxation advantage
4.Limited liabilityPotential disadvantages include:
1. Possible implications for capital gains tax
2. Distribution of tax losses
3. Establishment costs and administration costsRegards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Shape wrote:Hi steve, There's a lot of numbers there- i will have to sit down and work it out and post back later – bur for now i will answer your 4 questions. 1. Trust is quite simple- it's similar to a company, but the pit fall is WHICH type of trust you want to open and What structure/how – this will have a huge bearing in term of your tax and financial objective – you will need to speak to a accountant/ financial planer for this part. 2. The high LVR has started to come back. 85% LVR – no LMI. Any LVR higher- LMI is payable, but depending on which lender you go with it can be reduced by 50%. 3. I will need to work out your above number to see what your serviceability looks like. 4. $500 is over priced for a valuer, it's normally around $220 for a private valuer! can i ask whats the reason for getting a valuer? It sounds like your after a way to increase your rent-wouldn;t speaking to your agent who deals with this on a regular basis make more sense? Regards MichaelI have to say I think trusts are extremely complex. The tax law regarding trusts is vast and largely uncomprehendsible to the majority of accountants and tax advisors. The same with the law surrounding trusts. It is vast and complex with the average lawyer not knowing much about it at all.
I think many people don't even consider a small fraction of the things they should when setting up a trust.. eg Duties of the trustee..
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:I have to say I think trusts are extremely complex. The tax law regarding trusts is vast and largely uncomprehendsible to the majority of accountants and tax advisors. The same with the law surrounding trusts. It is vast and complex with the average lawyer not knowing much about it at all.I think many people don't even consider a small fraction of the things they should when setting up a trust.. eg Duties of the trustee..
Terryw- in regards about the accountant- I absolutely agree!
i personally had to replace my accountant who i have been doing business for the last 10 years, because he didn’t entirely understand how to set up the trust to my needs. A shame..Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Thanks everyone for your piece of advice
HSBC – When I setup my loan for my PPOR, I created a PPOR loan with offset & Investment loan (split
My PPOR Loan is setup as P&I, whereas my Investment loan is setup as Interest Only. HSBC says they cannot convert my PPOR loan from P&I to IO only. Bummer.
I naively took the HSBC intro offer of 1.5% off for the first year. I guess there is a big break cost moving away from HSBC.
My IP 1 is with Newcastle Permanent this was because HSBC was offering 70% loan with cross collaterising. SInce Orange is a risky suburb. HSBC only likes the major cities. I realised while negotiating for IP1.
Based on the above comments, I will have to increase my LMI on IP1 to 90% to assist in financing IP2. The rest of the extra cash I will hold it in my PPOR offset account.
Regards
Steve
– bur for now i will answer your 4 questions.
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