diceman99Participant@diceman99Join Date: 2005Post Count: 9
I currently have a Line of Credit (LOC) over my PPR the interest rate on this is approx 5.5%
Could I quickly purchase an investment property using monies in my LOC at 5.5% then at a later date get a traditional loan at say 3.5% over the investment property. Then payout my LOC.
So in effect rather than get a loan approval, I just use my LOC as a temporary borrowing facility.
Thanks in advance.TerrywParticipant@terrywJoin Date: 2001Post Count: 16,190BennyModerator@bennyJoin Date: 2002Post Count: 1,376
I can see the benefit of using the higher interest loan if it allows you to “settle quickly” in return for a nice discount on the purchase price. But if there is no immediate benefit for you, take the time needed to set up the better loan right off.
As always, if not meeting them on price, give a bit on terms. Or, if meeting their terms, then don’t give in on price. Good luck,
BennyTerrywParticipant@terrywJoin Date: 2001Post Count: 16,190
There can be advantages in using a loc and not mortgaging the property being purchased. One is that when you subsequently do mortgage it and borrow against it the lender can lend based on value and not purchase price.
E. G. Find a house valued at $100k and buy it for $80k using a loc secured against another property. 1 day after settlement apply for finance and borrow $100k X 80% = $80k. This works out to be 100% LVR based on purchase price.
Good in theory but difficult in practice.
The down sides are this would be treated as cash out borrowing and be much more restrictive than borrowing to buy the place.Corey BattParticipant@cjaysaJoin Date: 2012Post Count: 1,010
Be careful with this – many lenders are heavily restricting cashouts so you may draw the funds out and find then that you can only work with <10% of lenders as the others won’t allow you to draw the funds back out due to the latest round of restrictions.
Best to speak with an investment focused broker who can determine whether you might cause any issue with this – it will largely depend on the details of your situation – I’ve got some clients who actively use this strategy in particular with very distressed/damaged property and then renovate/revalue and equity release.
Aside from that – 5.5% for a LOC on your PPOR is extortionate, you could alternatively get that down to ~3.7x% odd with a restructure/refi which will be well ahead of what most investment loans. (you mention 3.5% for an investment loan, obviously an example but you’ll be stretched to get any reasonable product near that rate and most close will mean you’re making sacrifices which will limit your ability to borrow again in the future etc)Colin RiceParticipant@fmsJoin Date: 2011Post Count: 338
(you mention 3.5% for an investment loan, obviously an example but you’ll be stretched to get any reasonable product near that rate and most close will mean you’re making sacrifices which will limit your ability to borrow again in the future etc)
Realistically it will be circa 4.5% on an IP depending on the lender and loan structure.