Using equity as a deposit

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Woody86
Member
@woody86
Join Date: 2011
Post Count: 30
August 4, 2011 - 6:33 am
Hi Guys
Just a little confused about how using equity as a deposit for another IP is structured. If you have property 1 (20k equity) and want to use that equity for IP 2, how are the loans set up . Do you have the original loan plus a line of credit loan and the new property loan (effectivly paying 3 seperate loans) or does the loan on your IP 1 just increase as you draw the equity out in cash for the deposit. Just thinking from a structuring point of view as to not cross collaterise and for tax purposes.
thanks guys
Mick C
Participant
@shape
Join Date: 2010
Post Count: 1,099
August 4, 2011 - 8:03 am
Don’t top up what ever you do.
you will have to:
1. Draw this equity $20k as a SEPARATE loan ( also called a split loan) or LOC ( the choose is yours) – the money needs to be parked into a new separate ( normal or offset) account.
In any Mortgage/homeloans – the bank allows you to have up to 3-5 splits
Regards
Michael
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
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Same Banks. Better Rates. Served With a Passion.
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
August 4, 2011 - 8:48 am
Jameswood wrote:
Hi Guys
Just a little confused about how using equity as a deposit for another IP is structured. If you have property 1 (20k equity) and want to use that equity for IP 2, how are the loans set up . Do you have the original loan plus a line of credit loan and the new property loan (effectivly paying 3 seperate loans) or does the loan on your IP 1 just increase as you draw the equity out in cash for the deposit. Just thinking from a structuring point of view as to not cross collaterise and for tax purposes.
thanks guys
Yep, you essentially have three facilities set up.
PPOR
Loan 1 – Existing loan
Loan 2 – Equity you've accessed
IP
Loan 3 – IP loan
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone Me
Mortgage Broker assisting clients Australia wide Email: [email protected]
Woody86
Member
@woody86
Join Date: 2011
Post Count: 30
August 4, 2011 - 12:04 pm
Great thanks for that. That has answered my question. So I assume the line of credit it also paid off over 30years as if it was shorter the repatments would be higher and affect your cash flow..??? is that correct???
Ossi89
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@ossi89
Join Date: 2011
Post Count: 31
August 4, 2011 - 12:07 pm
Wow! I was wondering the same thing as James Wood! Cheers Jamie!
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
August 4, 2011 - 12:10 pm
Jameswood wrote:
Great thanks for that. That has answered my question. So I assume the line of credit it also paid off over 30years as if it was shorter the repatments would be higher and affect your cash flow..??? is that correct???
Just make the minimum interest repayments on that facility. Any extra payments should be placed on loan 1 (because it's not tax deductible) – ideally, an offset should be set up against loan 1 (that's where you'd park any spare cash).
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone Me
Mortgage Broker assisting clients Australia wide Email: [email protected]
Mick C
Participant
@shape
Join Date: 2010
Post Count: 1,099
August 4, 2011 - 3:26 pm
Jameswood wrote:
Great thanks for that. That has answered my question. So I assume the line of credit it also paid off over 30years as if it was shorter the repatments would be higher and affect your cash flow..??? is that correct???
Beware LOC is a evergreen account- meaning it does NOT have a “life” on the loan….can have it running for 1-100 years….
You make min repayment ( Based on a 30 years loan).
Advantage of LOC—-
1. Can draw on the account for any worth while reason ( stock? car etc?)
2. Control on the loan term — great for ppl who knows they will be getting a massive bonus at the end of the year and can pay out the LOC etc..
3. I/O only ( benefit for investors)
4. Control over cash flow
Dis-Advantage of LOC—
1. No real life term- can be in debt forever
2. Need to have a good strong financial control
3. Easy to mix up non-taxable debt and taxable debt ( point 2)
4. Have a negative impact on future borrowing in term of serviceability in that the lender looks at your “limit” rather then what you owe
Regards
Michael
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone Me
Same Banks. Better Rates. Served With a Passion.
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
August 4, 2011 - 9:55 pm
Usually you can get away with a simple IO loan split as opposed to a LOC. Perhaps explore that option with your lender/broker as well. It should be a little bit cheaper.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone Me
Mortgage Broker assisting clients Australia wide Email: [email protected]
Woody86
Member
@woody86
Join Date: 2011
Post Count: 30
August 8, 2011 - 10:34 am
Great thanks again guys for the helpful information. Will definately be in touch with you again aswell Jamie soon once I have a few more things sorted out deposit wise
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
August 8, 2011 - 12:04 pm
Jameswood wrote:
Great thanks again guys for the helpful information. Will definately be in touch with you again aswell Jamie soon once I have a few more things sorted out deposit wise
No worries James – I'm not going anywhere….although the South Pacific would be nice right about now
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone Me
Mortgage Broker assisting clients Australia wide Email: [email protected]