Up til now I have relied on my broker to point me in the right direction and I haven’t really tried to understand the ins and outs of different finance options. Lately however I have been reading more and I ‘think’ some things have finally sunk in!
Our situation:
3 IP all mortgages standard IO
1. House value $250K owe $176K bought 2006
2. House value $280K owe $230K bought 2007
3. Unit value $110K owe $90K bought 2010We rent so don’t have an PPOR
We would like to buy another property and have $25K toward a deposit. So far we have saved like mad to get a deposit each time we have bought. As we have $25k saved we were thinking of buying again, however I am wondering now if I had it all wrong.
Should we set up an LOC to borrow some of the equity from House 1? This will cover the deposit and acquisition costs. Then set up a separate IP loan for the remaining amount – possibly an offset loan and put our $25K into that to reduce the interest?
Thanks
Ruth
Can anyone confirm if I am on the right track?
Ruth
try to avoid cross-collateralising the properties as you should have adequate equity to have a loc. Also establish a 100% offset account to reduce your interest and allow redraw freedom.
We will assume for the purposes of the exercise that you have the $25K sitting in an offset account already.
Set up an equity loan (cheaper than a LOC) against IP 1 and use this to gear against for the deposit and acqusition costs and then set up a separate standalone IP loan on IP 3.
Only concern i would have is what you bought for $110K. Might be a small sq M unit and have had to have one of the other securities crossed as with it to get the gearing. Let us hope for your sake that is not the case.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Ideally you should have used a LOC on existing properties instead of cash. By using your cash you have done very good, but you have tied it up. If you had used equity you could have had a large amount of cash available which you could have used for the purchase of a property to live in, or other personal expenses.
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
We did have one of the properties as a PPOR but my husband is a scientist and we move with contracts. As a result we have lived in 4 states and overseas in the last 10 years so buying a house to live in hasn’t often been a priority for us. In the last few months we have moved back to our ‘home’ state so it is now time to settle down and once we decide this is it to buy a PPOR.
The $110K unit is a 2 bedroom unit in a regional centre so it isn’t a small student housing property or anything.
Thanks so much for your input Scott, Richard and Terry
Cheers
Ruth
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