Hi All,
So I took out a loan late last year to complete the renovations on my PPOR to bring it into the 21st century, add value and enjoy living in it for a while before it becomes my IP. I can pay down the loan quite quickly in the next 5 months however I have a few other things on the run (engagement, holidays, another IP). My homeloan is setup like an IP as thats the end intention, so interest only terms with Rams. Purchased for 320 and by market estimates could sell for 500 and used 21k loan for the renovations. So I am about 160k in front in terms of purchase+expenditure vs current value. If I were to rent it right now I have estimated a yield of around 10% as rents are climbing to about 700 pw.My question is, is it possible to consolidate my renovation loan onto my home loan now as I am finished renovating and would like to get a lower interest rate. Is this a costly process? does it involve fully refinancing the loan?
Or is it possible to get a line of credit to release some of the equity and just use this to pay down the renovation loan using the lower interest from the home loan.Hope that makes sense, any help would be much appreciated.
Sounds like you have set up the loan in a less than ideal fashion.
If you are going to rent the place out then I suggest you look at not paying the loan down and instead change to an IO loan with a 100% offset account.
The reno loan could be consolidated into the main loan as long as none of it was used for non property related expenses there will probably be no tax issues.
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
Agree with Terry the current set up does not sound ideal.
A loan restructure to IO with 100% offset would be the way to go and then you can always look to set up a sub loan against the available equity and use these funds for the next deposit on either your future PPOR / IP.
Have to admit Rams are not the ideal lender for such a requirement.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Sorry forgot to mention this but thought I did. Loan is already io and not paying it down. Would it cost me alot to move from rams to a lender who has a sub loan setup. Or if I remained with rams should I be asking for consolidation
Should cost you next to nothing assuming RAMS dont have any exit fees.
Would have the Govt registration & transfer costs but would probably find these costs are made up in a very short period with a better overall product.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
thanks for the replies. Any suggestions into lenders i should take a look at to facilitate such a move?
So basically if I consolidate with Rams (should be possible) or to another lender, they will pay down the personal loan I have with my bank for the renovations or do I just get access to that additional funds?
Terry above you mention should be ok for the loan to be consolidated if spent on renovations alone which it has. Is there any issues if the HL is with Rams and the reno loan with westpac?
Just wondering how they go about doing this consolidation, by either releasing equity on the property or increasing the loan value? Bit confusedYes, should be a problem joining 2 loans relating to the same property.
RAMS would have to reassess you and your property and increase the loan with the money being used to pay out westpac.
But take this opportunity to reassess your loan with rams
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, the should in your reply was a shouldn’t* was’t it?
Really appreciate the feedback, do you have any suggestions of suitable lenders, Rams i know arent ideal but at the time they were the best choice to get in, and honestly were great to deal with. So when I got in I knew I would need to reasses in a year or 2 which is now.
Thanks again,
Sorry I should have wrote "shouldn't" !
ie should not be a problemTerryw | 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
Sorry I should have wrote "shouldn't" !
ie should not be a problemTerryw | 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,
With the renovation loan, whilst the property is my PPOR is it correct to say I cannot claim any tax deductibles until it becomes my IP? I have done extensive work to the property and looked at the potential of claiming the % of house occupied by the GF but did not want to persue this path as it was rather complex and didn't seem to give much value back over the long term. I usually do my tax as its straight forward for me, ie salary, minimal work expenses and we live in the houseMy other question was, when reaccessing the home loan and looking at transferring, is the best method to just call around to lenders and explain what I am after. Or can a mortgage broker be worth there weight in this situation?
Amazing
Hate to say no lender is actually going to tell you that you could get a better deal up the road with another institution and to be honest my experience with most Bankers is that the dont even own their own home let alone an IP or two so advising clients on credit structure can be more a matter or telling you want Head Office want them to say or sell.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard I thought as much. Just starting to look at some lenders now, would prefer to have it all with my main banking if possible so all accounts can be viewed.
If I were to consolidate how does it get arranged in the account with a sub loan line of equity.Eg. Say I consolidate and I have a total HL Debt of 340k. In my account it shows the account and the 340k debt, does it then have the sub loan account underneath saying 150k available (purely example purposes) of credit much the same as a credit card or any other loan does. So I could just draw on this credit say for a new IP Deposit and it would be calculated at the interest agreed on the homeloan?
Are there restrictions on what the loan could be used for, obviously this could be a slippers slope to spending all of the equity you have in a property on toys and other items that could leave you in a bad position.Is this basically how it works and is this the standard way its setup for most trying to leverage off other properties consectively?
If you consolidate then you will be joining both loans together. You can also get a separate amount of credit available, this is best done as a separate split.
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
So the seperate split would be for the agreed amount of equity the valuers have agreed upon? The interest rate charged on this seperate split is this just linked to the home loan interest rate?
You could borrow up to 90 or 80% of the value of the property less your other loans.
The interest rate would depend on which product you took.
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, Just trying to work out how its arranged in account format. and how funds are accessed ie. transfer of funds similar to personal loan within accounts, or if funds need to be requested.
As Terry mentioned you would split the loans accordingly and link the offset account to the non deductible debt. (Can't see any real reason why you would have multiple offset accounts but thats always possible with certain lenders).
Nothing to stop you getting your Broker ordering a valuation upfront so as to ascertain the available equity before you even lodge the application.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks again Terry and Richard, I think I have this somewhat organised in my brain now.
Just to clarify and sum up,
House worth 320k, consolidate 20k personal loan to make 340k and reaccess lender to use. Keep IO format but create a 100% offset account for non deductible debt. Split loan with line of equity up to lenders LVR limit and summary should be a new home loan at 340k and a line of equity of hopefully 60k (80% lvr and new valuation 500k).Do I sound on track?
The $20k debt doesn't increase your value!!!
Hopefully your value is $500,000
80% of this is $400,000
Existing loan of $320k nd $20k peronsal loan joined = $340,000Set up a LOC of $60,000
Total loan $400,000
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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