Forums / Getting Technical / Finance / What’s this creative LOC mean

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  • Profile photo of rebecca2rebecca2
    Member
    @rebecca2
    Join Date: 2003
    Post Count: 54

    Hey all,

    I’m fairly new to all of this. Last week I was introduced to the use of LOC “Line of Credit” for invesment purposes in a new way to me. This is the way I understood it and I was wondering how many people out their were actually using this method.

    If you have an amount of equity that is available to you, you can use it to pay back your investment loans. This way you would not have to service them with wages (your 33c in the dollar wages).

    I’m not good at explinations without drawing pictures but here goes.

    You have 250,000 in spare equity. You take out a line of credit for a bit less than this and use this money to pay any short fall you may have in loan repayments in any investment properties. You pay approx around 7% interest for this line of credit. So this leaves your wages earnings in tact to give you more servicability when talking to banks about getting more properties.

    Can anyone tell me more about this method and or tell me who I can talk to in Melbourne to help me do my due dilgence. (How do you spell due diligence He He, I know what it means though)[dead2]

    Beck.
    “You have to leave your mouth open for a very long time before a roast chicken flys into it.” Early Proveb.

    Profile photo of Mobile MortgageMobile Mortgage
    Member
    @mobile-mortgage
    Join Date: 2003
    Post Count: 913

    Hi Beck,
    This method will not increase your serviceability; In fact as far as the lending institutions are concerned the repayments on the LOC will be accessed as a liability.
    There may also be issues with the ATO if you intend to claim the interest on the LOC.

    Regards
    Steven
    Mortgage Broker

    info@mobilemortgagemarket.com.au
    http://www.mobilemortgagemarket.com.au
    Ph:0402483216
    Ph:1800 820 500
    VICTORIA

    PLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    Who was promoting this idea Rebecca?

    It might be OK in a strongly rising market – I would be loathe to suggest it otherwise.

    Cheers folks,

    Simon Macks
    Mortgage Broker
    http://www.mortgagehunter.com.au
    0425 228 985

    Todays Hot Rate
    ***3 year fixed – 6.49%***

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of rebecca2rebecca2
    Member
    @rebecca2
    Join Date: 2003
    Post Count: 54

    Thanks Simon,

    I have sent you a private message.

    Beck.
    “You have to leave your mouth open for a very long time before a roast chicken flys into it.” Early Proveb.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,058

    I agree with Steven, this will not help your serviceability and will actually hinder it! There may also be adverse tax implications.

    Terryw
    Discover Home Loans
    Mortgage Broker
    terry@discoverhomeloans.com.au

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of elika7264elika7264
    Member
    @elika7264
    Join Date: 2003
    Post Count: 160

    Hi Terry,

    could you expand on the following.

    There may also be adverse tax implications.

    thanks[biggrin]

    Helen

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,058

    I am no tax expert, but think there may be problems with borrowing money to make loan payments. If not structured correctly the interest on this borrowed money may be not claimable.

    Terryw
    Discover Home Loans
    Mortgage Broker
    terry@discoverhomeloans.com.au

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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