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  • Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70

    Almost two years after purchasing our PPOR, we are finally in a position to acquire our first IP. We recently had a property valuation which revealed that we have approximately $50,000 of useable equity (at 90% LVR).

    We are booked in to see the bank this weekend to discuss my options, however I just wanted to run my plan past you guys to have some final input before committing to a purchase.

    We are looking to purchase a 3 bedroom house in an up and coming suburb for around $300,000. We intend to use the equity to cover the 10% deposit (circa $30,000) plus expenses. We will be structuring the equity loan to be independent of my PPOR loan (is this a LOC? I can't recall.) We will have the loan set up as interest only and any residual money (if positive cash flow) will go into paying off the PPOR.

    I know this is very broad description but I just wanted to suss out if there are any notable oversights I have made.

    Looking forward to hearing from you…

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Did you pay LMI with your PPOR purchase? Is the valuation a bank ordered valuation or your valuation?

    You can have separate loan accounts without the need of a LOC. Some will suggest LOC and some will suggested a standard variable with a linked offset. 

    Good idea to have all income income the rent, salary, etc going into offset against the PPOR.

    High level plan looks ok. 

    TheFinanceShop | Elite Property Finance
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    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70

    Hi Shahin,

    Yes we did pay LMI for the PPOR. Does this have implications?

    The valuation was a bank ordered valuation.

    I will have to discuss with the bank the ins and outs of LOC v Standard loan.

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Re LMI – whatever you have paid in LMI you can use this as credits so make the banker aware of this. This is really important when it comes to an equity draw.

    I prefer a std variable loan with a linked offset (separate account) unless im using macquarie bank.

    TheFinanceShop | Elite Property Finance
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    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    I would also ensure your Banker structures the loan in such a manner to enable you to buy another IP when you want.

    There are a couple of products that might let you have your cake and eat it at the same time.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,680
    Paul B. wrote:

    I will have to discuss with the bank the ins and outs of LOC v Standard loan.

    A bit like arranging security of the chicken coop with the local fox. I can never understand why anyone would want to arrange finance with some incompetent numb nut bank employee who rarely even understands the products they sell let alone advise how it should be employed to structure an investment portfolio.

    The biggest impediment and leading cause of investment failure is seeking advice from incompetent finance advisors who are primarily interested only in furthering their own agenda or that of their employer.

    For God's sake man do yourself a favor and engage the services of one of the expert brokers here with extensive knowledge and skill in property investment.

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

    Love the way you put it Freckle you are so so right.

    Cheers

    Yours in Finance

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

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Haha!!  Happy New Year to you Uncle Freckle.

    Paul, in all seriousness, Freckle is right.  Have one of the highly-regarded brokers from these forums take care of you.  The difference between having them steer your finances and trying to do it directly with the bank is like being a racehorse compared to a shetland pony.

    Jacqui Middleton | Middleton Buyers Advocates
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    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Paul

    Your plan sounds about right.

    The end result is three loans.

    PPOR

    Loan 1: Your current PPOR loan

    Loan 2: Equity release against PPOR to cover deposit/costs on IP (can be an IO loan or LOC)

    IP

    Loan 3: Remaining balance for IP

    As mentioned above, make sure they take into account the LMI you've already paid on your PPOR when carrying out the equity release – this should save you heaps. 

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70
    Qlds007 wrote:
    I would also ensure your Banker structures the loan in such a manner to enable you to buy another IP when you want.

    There are a couple of products that might let you have your cake and eat it at the same time.

    Cheers

    Yours in Finance

    Would the structure suggested by Jamie M achieve this?

    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70
    Jamie M wrote:
    Hi Paul

    PPOR

    Loan 1: Your current PPOR loan

    Loan 2: Equity release against PPOR to cover deposit/costs on IP (can be an IO loan or LOC)

    IP

    Loan 3: Remaining balance for IP

    I am picturing something like:

    Loan 1: Existing loan on PPOR (variable P&I w/ 100% offset)

    Loan 2: Equity release against PPOR (circa $40,000 interest only) – are the loan features the same of a standard homeloan?

    Loan 3: New loan on Investment Property (circa $300,000 interest only)

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Yeah looks fine.

    Just make sure that the banker doesn't cross up both properties (they tend to do this without the borrower being aware).

    Another thing to touch on is that both properties are going to be at high LVRs. It looks like you'll be taking the PPOR up to 90% and the IP purchase will be around 90% or higher. Not all banks will be comfortable with this level of exposure – sometimes we use two different lenders to get around this. One for the equity release and another for the IP purchase.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70

    Awesome thanks for your help

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    My pleasure – just post again if you have any dramas with your bank.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70

    Ok so went and talked to the bank. Some interesting outcomes:

    1. The bank is willing to release 100% of the equity.

    2. There was no credit on LMI (I will be charged $6800 on a $350,000 loan)

    3. There will only be two loans. The release of equity is not treated as a loan.

    Thoughts?? I was pre approved for $350,000.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Run for the hills.

    They're crossing your loans up.

    There is no reason why the LMI shouldn't be credited – unless they changed LMI providers since you took our your loan(which I doubt). Which bank is this?

    Just goes to show the incompetence of some bankers.

    From your previous posts, YOU have a better understanding of IP structuring compared to the banker you spoke with.

    On a positive note – you may have just saved yourself $6,8000 in LMI by posting on this forum :-)

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    They are cross securitising you and taking you to the cleaners. I would move onto another banker or find a decent broker.

    TheFinanceShop | Elite Property Finance
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    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70

    I asked if this was cross collateralising and she informed me it wasn't. She said they are two separate loans and the original loan will not be affected. The bank is NAB.

    Profile photo of Paul B.Paul B.
    Member
    @paul-b.
    Join Date: 2013
    Post Count: 70

    Her explanation on the LMI is that the original LMI payment covered the original loan and I will need to pay additional LMI to cover the increase in borrowing brought on by the new loan.

    Thoughts?

    Profile photo of TheFinanceShopTheFinanceShop
    Participant
    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    If you are drawing upon the equity from your current property which you have paid LMI then you have the LMI credits. If she has told you otherwise then she is mistaken or there is some form of miscommunication. 

    Just tell her to do what has been advised in this thread. Print out and take it to her.

    TheFinanceShop | Elite Property Finance
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Viewing 20 posts - 1 through 20 (of 34 total)

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