All Topics / Finance / Good loan structure advice needed for PPOR then IP after 6/12

Viewing 20 posts - 1 through 20 (of 26 total)
  • Profile photo of gobsospacegobsospace
    Member
    @gobsospace
    Join Date: 2009
    Post Count: 4

    New to property, soon to buy and seeking some thoughts…

    Details;
    First loan of 300k (using 5% deposit) with intent to live in for 6/12 to qualify for FHOG.
    After 6/12 move out and use as an investment property.
    Income of 80k/pa gross or 55K/pa net.
    Additionally, I'd like to move forward and purchase an additional property in 18 months time, hopefully the beginning of a sizable portfolio.

    Should I use a Basic Variable loan, Standard Variable with Offset Account or other? Also, specific negative implications of choosing a particular type with view to restrictions with finances for future investing?

    Cheers for your thoughts

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    I personally would be recommending an interest only loan with a 100% offset account.

    Look to maximise your borrowing, take the mortgage insurance on the chin (as it wlll be propertionally Tax deductible when the property becomes a rental property) and look for a flexible loan product that can grow with you.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    i agree with Richard.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of jsawtelljsawtell
    Participant
    @jsawtell
    Join Date: 2007
    Post Count: 57
    Qlds007 wrote:
    I personally would be recommending an interest only loan with a 100% offset account.

    Look to maximise your borrowing, take the mortgage insurance on the chin (as it wlll be propertionally Tax deductible when the property becomes a rental property) and look for a flexible loan product that can grow with you.

    Hi Richard,

    When can you claim the Mortgage insurance – first year as an IP, or is this capitalised for when you sell? 
    Thanks Jason

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Jason

    LMI is a borrowing cost and therefore claimed over a 5 Year period or the term of the loan if shorter.

    It is proportionalised in the first year so if you settled 1 Jan you would claim the number of days from then to the end of June.

    Remember you can only claim it once the property is available for rent. 

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of PosEnterprisesPosEnterprises
    Member
    @posenterprises
    Join Date: 2006
    Post Count: 290

    Richard do you think that having a 100% offset on your PPOR all the time is a good idea even if you don't want to pay it off.

    What are the advantages of this?

    Profile photo of gobsospacegobsospace
    Member
    @gobsospace
    Join Date: 2009
    Post Count: 4
    PosEnterprises wrote:
    Richard do you think that having a 100% offset on your PPOR all the time is a good idea even if you don't want to pay it off.

    What are the advantages of this?

    additionally…I'm under the impression that it would be advantageous to use a 100% offset if I was to have a significant sum (say $10K +) in the account and my intention was to pay off my PPOR, but what if I transfer the property to become an IP.  Is it still advantageous to have an offset account, particularly looking at such things as tax benefits and the likelihood that any small amount of money I  am likely to have (as I'm starting out) is still capable of earning interest elsewhere?  Does the offset account have any hidden benefits with regards to placing money for acquiring a second property?

    Cheers

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    GO,

    Funds invested in a Bank account will at present earn you very little in the way of interest and that interest will of course be considered Taxable income.

    Even if you have no non deductible liability and on the basis that you do not need the interest to live off the offset funds are effectively paying you interest at the same rate as your home loan is being charged. Difference being that you do not receive the income.

    Ever dollar will offset against any potential cash shortfall and will be savings you money.

    Should you purchase again then merely switch the offset account to the new loan and save further interest this time on a non deductible loan. 

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    GO,

    Funds invested in a Bank account will at present earn you very little in the way of interest and that interest will of course be considered Taxable income.

    Even if you have no non deductible liability and on the basis that you do not need the interest to live off the offset funds are effectively paying you interest at the same rate as your home loan is being charged. Difference being that you do not receive the income.

    Ever dollar will offset against any potential cash shortfall and will be savings you money.

    Should you purchase again then merely switch the offset account to the new loan and save further interest this time on a non deductible loan. 

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of ZigZig
    Participant
    @zig
    Join Date: 2006
    Post Count: 17

    Not a suggestion but for your consideration.

    Since you are going to rent the place eventually I guess you will purchase another property to live in.
    In which case you will probably end up with no cash to offset against the loan for the original property you lived in which then becomes the rental.

    I have a St George Portfolio loan for my rental property with a Line of Credit Loan for my PPOR extensions, reno and cars etc.  This loan has a credit card to which all my expenses including those of the rental property and living expenses.  The idea of this is that while the Visa card debt builds up, you are not paying interest on that money had it immediately been deducted from the LOC loan.  This is automatically paid down each month before interest is due on the card.  You do have to be careful spending.  But I pay all my major bills on line and keep a continuous eye on what is going through the visa.  Loan payments to cover interest only are also tranferred each month to the rental loan.  Cash can be drawn down free of charge via teller machines from the Line of Credit Loan using the Visa card.  The Bank offers 0.7% discount on the LOC loan but it must remain variable.  More loans can be added to the portfolio on approval from the bank.

    Please talk Bank managers first before deciding on this to the latest and more accurate details.  I am just a Pleb investor and by no means an expert so do plenty of research on this.

    Cheers
    Zig

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Zig

    You are referring to the St George Portfolio loan under the Advantage Package.

    The loans HAVE to be cross collateralised as a condittion of the package and is the long term death nail for investors.

    You would be wise to steer well clear of this product as it will give you nothing but grief the more preporties you purchase.

    If you ever switch the PPOR to an IP you again have immediate Tax issues.

    There are better products out there without the limitations, costs and restructions placed upon you by the Dragon.

     

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of ZigZig
    Participant
    @zig
    Join Date: 2006
    Post Count: 17

    Thanks Richard,

    I have had this loan setup for 6 years and it has been working well for me.
    But I will consider other options when I purchase my next IP.

    I am just throwing something up as a suggestion to save Gobsospace some money over time.

    I would be just as interested as Gob to see a better structure thanks.

    Zig

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    No dramas Zig just if you ever rent the current property out or look to buy another IP and use SGB that is when you will have issues.

    As i say i like the product if they would only remove the X collateralising clause from their Letter of Offer and Mortgage Docs.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of emptyvesselemptyvessel
    Member
    @emptyvessel
    Join Date: 2008
    Post Count: 170

    I have a rather simple question;

    For PPOR loan, any reason why you would choose a redraw facility over a 100% offset? {Or are these effectively the same thing under some circumstances?}

    Main reason I ask is that this is exactly what I have done and it seems to be working perfectly. Loan is with the CBA under the full wealth package so I am free to pull money in and out at will without charges or limits. I put 20% deposit down to avoid the LMI, then once settlement went through immediately went in and dumped all my spare cash into the redraw facility.
    Next step is to have all my pay/income automatically put straight into the redraw facility and setup various autopayments for myself and my bills. Far as I can tell, this achieves exactly the same as 100% offset for a PPOR loan.
    Plan for IP is either to switch to LOC or just take some of the redraw cash and lay it out on a new loan. Haven't quite decided which yet and will discuss with my broker in detail before modelling the outcomes to help decide.

    Please clarify my thinking here. I am relatively new to the whole finance thing.

    Profile photo of CentralChoiceCentralChoice
    Participant
    @centralchoice
    Join Date: 2008
    Post Count: 64

    EV,

    You're almost there. Instead of putting it into the redraw (ie the loan), you should be putting it into the offset, which I believe is called the mortgage interest saver account.

    It's when you redraw the cash from the loan where you may have potential issues, as you want to preserve tax deductibility, particularly as under the wealth package the offset account comes for free.

    Same effect better structure.

    hp

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Only problem is that the CBA 100% offset is not fully transactional in the true sense so not as good as some of its competitors.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of CentralChoiceCentralChoice
    Participant
    @centralchoice
    Join Date: 2008
    Post Count: 64

    Agree with Richard. CBA's is quite a pain to operate.

    That being said, there is some value is 'separating' the extra repayments.

    Profile photo of PotoPoto
    Member
    @poto
    Join Date: 2009
    Post Count: 3

    I too am considering the original posters Idea. I wanna take advantage of the grant for 6 months then make the property an IP. I  will have to live in another town by then and probably rent initially before looking for a PPOR to buy.

    Regarding loans, I have spoken to the bank about going P + I initially
    then converting to Interest only. I thought it might be a requirement of the fhog too.

    Any thoughts on just getting an Interest only from the get go?

    Property I am looking at will probably cost 300-320K and could rent for 300-320 pw

    Profile photo of CentralChoiceCentralChoice
    Participant
    @centralchoice
    Join Date: 2008
    Post Count: 64

    Poto, you can easily get a 95% loan + LMI as an interest only facility.

    Profile photo of gobsospacegobsospace
    Member
    @gobsospace
    Join Date: 2009
    Post Count: 4

    Thanks to all who have helped me with ideas and thoughts.

    I've decided to go with Bankwest Rate Traker Ultra Home Loan Definitions as an interest only loan and with an offset account attached.  I particularly liked the 0.90% discount off the major 4 banks average home loans and no exit fees leaving me good to refinance later.

    Cheers again to all,  here's the link if anyone fancies a look.

    http://www.bankwest.com.au/Personal/Home_Loans/Home_Loan_Products/Bankwest_Rate_Tracker_Ultra_Home_Loan/index.aspx

    Gobsospace

Viewing 20 posts - 1 through 20 (of 26 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.