Forums / Getting Technical / Finance / Best financing structure

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  • Profile photo of MattMatt
    Participant
    @mathieud
    Join Date: 2017
    Post Count: 2

    Hi everyone,

    Can I ask for advice on loan structures? I have met two specialists who provided me with the exact opposite advice… I start to think that there is not “right or wrong answer”, rather a preference for each broker…

    I currently have:
    IP1: bought $430 with 2 loans of $190k & $195k. Currently valued at $600k. LMI paid
    IP2: bought $530 with 1 loan of $461 + equity release from IP1 of $75k. Currently valued at $600k. LMI paid again.

    All loans with the same bank.

    I am in the process of purchasing IP3 (land + new home package) for $435k and I have one broker suggesting that I should “separate” the 3 houses with 3 separate lenders (meaning refinancing, changing our existing structure, giving up my LMI…)
    On the other side, I have received some advice to keep the existing home loans as per existing and simply find another bank to finance IP3. The same person sees no point to refinance as I would pay LMI twice and we may not be able to ensure all properties are fully independent from a loan structure perspective.

    Thanks for thoughts and your feedback!

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    Hi Matt,
    The way I see it, there is nothing wrong in staying with one lender EXCEPT if they cross-collateralise all properties. At some point though, you may find that lender won’t allow you any more loans, at which point looking elsewhere might become an imperative.

    Hopefully one or two or our resident finance gurus (Mortgage Brokers) will step in to give you the benefit of their knowledge, and to suggest a way that will appeal to you. Good luck

    Benny

    Profile photo of RMAARMAA
    Participant
    @roslyn77
    Join Date: 2004
    Post Count: 21

    Hi Matt,
    My 2 cents.
    LMI paid may be claimable in your tax return if you refinance but honestly I can’t remember the specifics in regards to timeframes, you’d need to speak to your accountant.
    But have either of the brokers run the scenario with you properly so you can make a decision?
    What I mean is, did they work with you to run the numbers. You need numbers, you can’t make an informed decision without them.
    Like; how much LMI did you pay?
    How much would you need to pay if you refinanced one, or both? The LVR makes a difference.
    What LVR are you trying to achieve? Because both look to be between 70-80% currently. How much do you need for the new purchase?

    If you kept one with the existing lender, maybe the higher LMI premium paid, did a top up with that one, would you pay full LMI again or just on the increase?
    Have they considered refinancing either internally or externally IP2 to say maybe 90%, to repay the original equity release from IP1 so that property’s loans are consolidated and then you reuse the funds against IP1 for the new purchase. And take IP3 elsewhere.
    Could this result in a lower LMI premium if you’ve already paid it on IP2 and only need it on the top up?
    Do you need/want IO repayments? Have they looked into your options if a higher than 80% LVR is required and they’re looking at a lender that is forcing p&I like some are now for investments.

    There’s so many variables.
    There isn’t a ‘right or wrong’ answer as you say but which of them gave you the indication they wanted to work with you to get the most cost effective structure for YOU.

    Rmaa

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Refinancing you will earn the broker a commission so they are biased. Ask them to justify why you should move lenders – it may make sense because of a lower rate, etc.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of MattMatt
    Participant
    @mathieud
    Join Date: 2017
    Post Count: 2

    Hi all,

    Thanks for the quick turnaround!
    My understanding from your answers is that there is only one way to find out the “best” solution: crunch the numbers with each broker… and go in the details & fine prints!
    So far both of them have provided me with hand drawn sketches of the proposed structures, but nothing more detailed yet. I am waiting for them to give me some figures.

    Anyway, thanks for your suggestions…

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    It looks like your existing properties are slightly below 80% LVR. How are you paying for the deposit for the new purchase? If you’re looking at releasing equity it will be dependent on the current lender whether they will allow this as there has been a large number now denying the ability to release equity above 80% LVR.

    Based on this scenario the balance would be to work out:

    *how you are paying for the deposit on the new property – if via equity whether the existing lender will allow this, or do you need to go to another lender
    *is the existing structure appropriate – if any changes need to be done whether this might need to be done before you buy IP3 and potentially then run out servicing/ability to make any changes
    *whether IP3 needs to be with another lender, or the same (borrowing capacity, cost considerations etc)

    I wouldn’t necessarily split the loans up as 1 property/loan per lender as this is overkill and is generally a novices understanding of risk mitigation. Definitely avoid cross collateralisation like the plague, but you can still build a good initial portfolio putting more than one loan with the one lender should it be structured correctly to fit your needs not the bank.

    Good luck, getting the right a lot of the time is in being able to trust your adviser.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

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