Everyone, I wanted to know what would be the best way to structure my loan for my new investment property. My situation is as follows:PPOR is valued at (by bank) $520,000 and have a mortgage of $420,000. I will using $50,000 from my PPOR for a deposit on my investment property which was purchased for $213,000.What would be the best way to structure the loan when considering tax and other important variables? Any help would much appreciated.
Hi Kris
Very difficult to comment without all of the information.
I assume that the extra $50K taken on the PPOR was a totally separate loan and not a redrawn amount ?
The structure of how to purchase the new IP will depend on many thinks so with a little information i can provide some structured advice.Richard Taylor | Australia's leading private lender
Hi Richard, the 50k being drawn from a line of credit
I would just get a IO loan with the deposit coming from the LOC (which should not be used for personal expenses). The 2 properties shouldn't be cross collateralised. An offset account shouldn't be needed on this one, but would be a good idea on the PPOR 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
Hi Terry
Why do you say the 2 properties shouldn't be cross collateralised? What would be the benefits and disadvantages of doing it this way?
Thanks
Totally agree with Terry the 2 loans should be standalone.
The disadvatages are numourous and rather than take time to list them do a search and you will see what Terry and I have written previously about such a strategy.
Your mortgage broker if he or she is investment orientated shoudl be able to explain to you the reasons why you dont want to X collateralise the securities.
Dont bother asking your Bank as they will have no idea as they will want to maximise their security by suggesting the course of action.
Richard Taylor | Australia's leading private lender
Hello Kris,
I hope this email finds you well, it is very hard to give you tips without knowing the full details, I gather with you taking out the 50,000 from your home loan, that you will now owe 420,000 not 470,000. You are very close to 80% loan to security ratio (LVR)accross both properties at 420,000. If you are above 80% LVR you normally have to pay lenders mortgage insurance this is a once off payment. I quickly worked out you may need another $6000-7000 more to avoid mortgage insurance. (note this will need to be savings you can't then owe 427,000) You can stay with one lender if you like and purchase the property at 100% plus costs. It could be worth while having the new loan as interest only. Just be careful of Lenders Mortgage Insurance
Happy to answer more questions if you want
Regards
James Bunning
Mortgage Choice Dandenong
[email protected]Hello Kris
It is always good to get a second opinion and I must start by saying I am a little disappointed that you have not responded to my earlier post.
I agree with Richard and Terry with using various lenders but sometimes it is good to stay with one Bank, because the more you borrow with them the higher they discount their rates and fees.
I would appreciate a response.
Regards
James Bunning
James
I am not being funny but where did Terry or I make comment about using a separate lender.
Also what Post of yours has Kris not responded to.
I was under the impression it was he who posted the original post asking for some comment not the other way round.
Richard Taylor | Australia's leading private lender
Hi everyone!
Firstly, I'd like to thank everyone for their opinions.
James I do apologise for not responding to your post. I know its always nice to be acknowledged.
Also, thanks for doing the quick calculations. Because I work for a bank I can borrow up 90% and avoid the Lenders Mortgage Insurance.
I think I'll be going with an IO loan without cross collaterilising them. I will also keep with the same lender due to advantageous interest rates.
Now the next stage…getting the renovations organised. I negotiated a 100 day settlement that will be handy
Regards,
Kris
I was wondering what the CGT implications are for the above transaction. Also, what would the base dates be in order to determine CGT? Contract date or settlement date?
Cheers
Kris
For CGT purposes the Contract date and not the settlement are taken.
Richard Taylor | Australia's leading private lender
oops…sorry wrong thread. Please refer to my other post titled "deposit bonds"
Thanks
Kris
For CGT purposes the Contract date and not the settlement are taken.
Richard Taylor | Australia's leading private lender
In relation to the above would it be better to have to loan for 90% (i wont pay LMI) or for the full purchase price 100% plus fees. This is for the investment property.
Cheers!
Kris
Depends if you have any personal non deductible debt.
If yes then borrow the full 100% + costs and use the 10% you would have used as deposit to pay down some personal debt.
If no then it is upto you. Personally i would go 100% borrowing and use the 10% to place in an offset account in case i needed it for another buy.Richard Taylor | Australia's leading private lender
Hi Richard,
I dont have any personal debt except for my PPOR.
Your response was what I was thinking. Its always good to get another opinion. Thanks for your response!
No worries.
Richard Taylor | Australia's leading private lender
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