Hi all,
I’ ve been thinking of following the process below once we have made more headway in the equity in our PPOR, and thought to just seek some guidance from those in the business of lending money.Leap-frogging to IPs
Assumptions:
1. Your owner occupied (O/O) value $200K, existing loan (down the track) $100K
2. You purchase investment property value $250K
3. Lets assume serviceability is not the issue and that we only want to achieve an LVR of 80%This is what I am considering doing:
1. Take out LOC for $80K against PPOR = 80% LVR
2. pay deposit (20%) + costs for IP = approx $63K
3. Take out 80% loan = $200K secured only by IP (stand alone security)This way I avoid cross-collateralisation of our properties and you still have enough money left in your LOC to purchase another IP (provided you have the serviceability).
What are your thoughts?.[blush2]
Cheers
C@34
Hi Calvin,
This is a good strategy, and its used by many investors, this structure will work with either an offset or a LOC or both.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
I agree that it is a good strategy, but one minor point with your example.
If you PPOR is valued at $200,000, then 80% is $160,000 less your current loan of $100,000 = $60,000 in equity available. I am not sure you understood the equity available is 80% less the current loan on that property, as your example had a $63,000 deposit which was more than the available equity.
Terryw
Discover Home Loans
North Sydney
[email protected]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
Thanx Steve,
this offset account would entail me banking with one finacial institution, correct?
Currently we bank with CBA (because they’ve been good to us) but, because of my employers Home Purchase Plan, the mortgage is with another Lender. It’s a bit messy, but our intent is to be here for 6 months and work on debt reduction to overcome the financial ‘Sin’ of instant gratification. Then it’s upwards and onwards! I may have to go with the lender of my current mortgage as my employer pays for 80% of the interest that our mortgage incurrs and I’d be a fool to give that up easily.Cheers
C@34
Terryw,
of corse you are correct! Minor glitch in the mental calculations. The numbers were taken from the vast depth of my mind (except the value of the PPOR and the Mortgage) and I tried to illustrate my thoughts.
Not original, but I had to work them out none-the-less as I don’t recall any-one spelling them out like this before.
I thank you for the correction, I now have something to work with.Thanx again
Cheers
C@34
Hi Calvin,
Yes you are correct; the offset would have to be linked to the mortgage,
BTW, That is a fantastic deal your getting with your employer,
Cheers.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Its the only reason I left my last employer!
I used to work for a bus contracting company and helped the owner build his busines to twice its original size. I feel as though I own pert of it (even though I don’t). Made me feel good to know how much effect I can have on a business.
BTW, the owner is doing very well financially and he is my mentor, so to speak (and unofficial). We have a good relationship and I have left on good terms. I knew that he wouldn’t be able to afford to give me the same perks and so I had to make a hard call.Cheers
C@34
Originally posted by calvin@thirty4:Currently we bank with CBA (because they’ve been good to us) but, because of my employers Home Purchase Plan, the mortgage is with another Lender.
Hi Calvin,
Your proposed strategy is exactly the same as the one we currently employ. Once you have your LOC set up as you propose there is nothing to stop you going to ‘anybank’ as distinct to staying with ‘which bank’ to get the balance of your loan funds.
In fact a good broker will be able to line your short and long term needs with a lender that is more favourable to your personal situation and goals so that your total borrowing capacity is maximised.
In our situation our core banking is with Westpac but we have other loans with other institutions Ie simplistically 20% (edit inserted or 10% depending upon your strategy and beliefs)+ costs from Westpac LOC and remaining funds from lender X or Y or Z.
Offset account (against PPOR receives all income) and electronic deposits and withdrawals maintain the comings and goings of the accounts and the various transactions. This helps us reduce our monthly non-deductible interest bill with the assistance of rental income received.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thanks you guys
Calvin for putting up that great leap frogging example and thanks to Steve, Terry & Derek for the great answers
I learnt a lot!![biggrin]
Steve
Offset account (against PPOR receives all income) and electronic deposits and withdrawals maintain the comings and goings of the accounts and the various transactions. This helps us reduce our monthly non-deductible interest bill with the assistance of rental income receivedDerek, just to paraphrase: Our current mortgage is with ANZ Bank. An offset account would then be with ANZ although other mortgages could be with what ever bank gives us the best deal at the time.
All rent payments go into the offset account (including our wages) and all mortgage repayments come out of the offset account, irrelevant as to the Lender.
All interest accrued by the offset account then helps pay our PPOR mortgage further reducing our loan (ontop of our actual mortgage repayments).Correct so far?
In our situation our core banking is with Westpac but we have other loans with other institutions Ie simplistically 20% (edit inserted or 10% depending upon your strategy and beliefsCall me stupid but I don’t understand this. Just when I thought I knew enough to set up my empire, I learn a whole lot of new stuff. Just goes to show, you never know everything!
Thanx for that light Derek and others. Bring on more!
Cheers
C@34
Hi Calvin,
Another option to consider,
Organise a split loan with redraw and an offset attached to the investment split, No need for a LOC,
In normal circumstances the offset is attached to the non-deductible portion of the loan, but in this case you may want to take advantage of your employer paying 80% of the interest on your PPR debt.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Hi Steven,
In normal circumstances the offset is attached to the non-deductible portion of the loan, but in this case you may want to take advantage of your employer paying 80% of the interest on your PPR debt.would it not be in my best interes to still do it the normal way and pay off all the non-deductible interest despite my employers efforts?
I can then use the equity in our PPOR to buy another IP faster? Would that not be better? I like your advice but my wharped sense of logic doesn’t get it. See then the new mortgage again is tax deductible, yes? As it is used for making more money (as in the purpose of the loan is for making more money).
Am I on the right track here?Cheers
C@34
Hi Calvin,
Your situation is fairly unique, think about which option offers the greater benefit,
is it the 80% discount you currently receive on your PPR mortgage, or is it the deductions you will receive on an investment loan?In both scenarios you are paying down debt to release equity for use as deposits on further investment, which portion of the split loan you decide to concentrate on paying down First will depend on the answers to the above, Cheers.
Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
Thanx Steve,
more food for thought!
Cheers
C@34
Calvin…
Can you get your ‘boss’ to talk to ‘my boss’…hey, does your boss wanna beeee my boss?
Great deal and good on you..
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorIn our situation our core banking is with Westpac but we have other loans with other institutions Ie simplistically 20% (edit inserted or 10% depending upon your strategy and beliefsCall me stupid but I don’t understand this. Just when I thought I knew enough to set up my empire, I learn a whole lot of new stuff. Just goes to show, you never know everything!
[/quote]Hi Calvin,
By way of numbered example – assume we had have available $100K in a LOC (with Westpac) and saw four $100K properties we wanted to purchase.
It would be possible, in an extreme example, to go to four different lenders and say ‘I have $20K deposit + $5K closing costs’ I want a loan for the remaining $80K.
As to whether or not this structure and approach suits you that is where a good broker can enter the picture. They will be able to assist you set up a structure that is consistent with your goals and financial constraints/opportunities that will serve you well into the future. Spend a bit of time getting ‘it right’ now and you’ll save yourself some heartache and money later.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
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