How bad if PPOR and first IP are with the same bank?

Hi MDD,

I guess there is not much choice for us to go with different banks, only limited banks would consider our case.

Good on you for asking, rather than just guessing – a much smarter move !! ;) I think you will find (possibly today, from a Broker or two on here) that there may be less limits than you thought. At the same time though, what I used to know has changed recently, so I will leave further comment to those who KNOW.

Our broker’s strategy is refinancing our PPOR loan to a larger amount, so we will have a PPOR loan and the extra cash for deposit of our first IP…. Park the cash into an offset account then using it as the deposit for our first IP.

Your Broker maybe already has this in mind, but just be sure that the extra loan against your PPOR is a SEPARATE ACCOUNT which keeps deductible and non-deductible loans apart. DO NOT just “refinance your PPOR loan to a larger amount” on the original loan (as your words infer is about to happen).

It is very important that your finance setup is done correctly, so if your Broker is thinking of doing what I am warning against, I would recommend that you consider cutting them adrift, as it sounds like they do not know what is best for you – and that WON’T help you.

I am pretty sure one or more of our resident MBs will pop up to add their assistance with these questions. I, for one, am very glad you ASKED THEM. Give yourself a high-five !!

Benny

Hi MDD,

May I ask why cant we refinancing our original loan to a larger amount?

Oh, you CAN do that, no problem. It is HOW you do it that can be a problem.

Initially we have $400k loan on our PPOR with A bank, we now are going to refinance this loan to $600k with B bank, so we can use the $200k equity for deposit.

Bank A won’t be allowing Bank B to provide you with $200k, so I assume you must be moving ALL of your borrowings to Bank B, yes?

When you do, keep $400k for your PPOR as one account, and take a separate account for $200k (also borrowed against your PPOR) for the IP Deposit. As I said before :-

just be sure that the extra loan against your PPOR is a SEPARATE ACCOUNT which keeps deductible and non-deductible loans apart.

So, don’t just borrow $600k as ONE loan – make it two loans – one for $400k and one for $200k – THAT is very important.

Benny

Hi mddedf

Yes with 3 months Casual employment your choices will be limited but that is not to say you can’t keep the loans with the same lender and structure them correctly.

Benny has set out a quick step answer in regards to this.

Lenders love to cross collateralise especially in the current climate so make sure your Broker reads every document to ensure that is set up right from start to finish.

Had a forum client contact me yesterday who had been told that his loans were separate by his Banker.

He went back to the original letter of offer to see that the refinance and equity loan he did was indeed separate however when he purchased his IP the Bank had slipped in both properties as security and he didn’t notice. This has only come to light some years later now he is selling the IP and the Bank have asked for him to make a lump sum payment to his home loan from the net sale proceeds. Not nice…..

Cheers

Yours in Finance
0-40 Properties in a decade. Ask me how.

Aaron your 2 cents worth input is certainly causing a lot of people a lot of pain going forward.

I’m sorry, very sorry but Aaron, what you trying to sell here:
-Benefits,
-relation ship,
-Easy paperwork,
-Better rate,
= You must be very naïve, brainwashed or setting up your clients for a ride on purpose.
You cause nothing but confusion with these worthless arguments. Non of the points is worth any thing. Zero

The lender would have 1 client set up for long term that’s all.

If a client has its accounts separately structured or with different lenders, who do think is in control of a healthy investment future?
Any client can simply look up each account at home and is informed 24/7.
The client’s accountant can simply do a proper tax return and segregate PPOR form IP. Very, very clean and tidy if separated.

If your client want future loans then they can simply shop around, but not with blokes like you.
There is nothing complicated at all to go to another lender, the day after,….same paperwork.

The last 12 years I talk to banks and lenders staff and I’m amazed, really amazed how incompetent they are.

Unbelievable

Hi Daniel,

Im always happy to hear your feedback and point of view, but please don’t accuse me of what you just said.

As I pointed out, I am an EX bank staff. I have no interest whatsoever in helping banks make more money. In fact if I can help someone save money from the big banks, I would be very happy.

Fact is that if you have a larger loan amount, you can negotiate a better rate discount from the bank. Usually these are with the wealth package or whatever each banks calls them. That doesn’t mean you are unable to shop for a better rate with an online bank even after the discount the big banks give you.

Paperwork – If you have all your accounts under one bank, it means that you do not need to provide paperwork from other banks. YES I know getting your paperwork is easy, but just because it is easy for you doesn’t mean other people don’t find it tedious and inconvenient. You have no idea how many customers out there opt to stay with one bank just because they can’t be bothered with paperwork.

FYI in the past when I have encountered clients whinging about being able to get better rates somewhere else and online, I have always told them if it’s solely the rate you are looking for than you go go with whoever gives you the lower rate. 80% still come back due to convenience and the perception that they will get better service. Will they get better service elsewhere? I don’t know I haven’t tried other people’s service so what can I say.

Again I like have clarify that I no longer work for any banks nor do I have any interest in helping them make money. If anything, I write articles on how people can cut down on fees and interest they pay to the bank and how to negotiate better against the big banks.

• This reply was modified 8 years, 6 months ago by  Wikibank Aaron.

Wikibank Aaron wrote:

For accounting purposes it would be easier for you to use your PPOR + Investment property as security and have only one loan. However yes you would need to cross collateralise.

That would be a nightmare. You’d end up with a contaminated loan and not be able to claim any deductions.

Cheers

Jamie

Hi Jaime

I think I’m being misunderstood here.

I meant one NEW seperate loan against the investment property.

As the OP talked about refinancing his PPOR with a higer amount and using from redraw then another loan against the IP.

I understand where you’re coming from Corey.

In fact, personally I would split the collateral and loans as well. However to some people, having a home loan to manage seems like a big gigantic hassle. Was just pointing it out as an option, I wasn’t really suggesting or recommending it.

The benefits, I talked about was for keeping the loans under the same bank, not to cross collateralise. Reading through my previous posts, I can see that maybe I should’ve answered in more detail. Thanks.

Corey Batt wrote:

Still a *terrible* idea to even suggest cross collateralising Aaron.
The best option without question would be to setup a new split SOLELY against the PPOR to release the deposit funds and then the balance of the purchase finance against the new purchase SOLELY.

I’m confused Corey – do you mean take out 3 separate loans?
1x PPOR loan,
1x Funds for Deposit and
1x Balance of INV?

I’m in lending myself and I would simply do 2 loans. 1 would be the original PPOR loan + a second loan which would be for the deposit funds. Once the property has been secured I would increase the existing loan to cover the balance at settlement (or refinance the existing debt into the newly created investment loan) which is solely secured by the investment property.

Thanks,
JD

Richard Taylor wrote:

by doing what you suggest you are cross collateralising the securities.

Yes, correct. However, given that I’m working for a bank and not multiple (brokering) I guess it doesn’t matter too much considering the bank will hold both securities anyway. Still some disadvantages but very minor.

Thanks,
JD