Accessing 90% equity on PPoR & IP loan strucutre

All,

first time poster here and a newbie to IP world . Appreciate if you can assist me with these scenarios. What'd be the best structure in my case (220+ household income PYAG)

PPoR value = $1.05 mil
P&I on PPoR = $620 K

I had below structure in mind and please correct me/or suggest a better way of maximising deductibility and not lower the serviceability to continue purchasing IPs:

1. Refinance and draw $220K equity on a stand-alone IP loan IO for 5 years
2. $620K PPoR 80% Fixed for 2 years and 20% variable with an offset
3. Fund an IP around 1-1.2mil with $220K equity and go IO for 5 years to accumulate surplus into PPoR loan offset

Another scenario which I am not sure of could be draw up to 90% of equity from current PPoR (been here for two years) which gives me below options as am planning to turn my PPoR to IP in 2 years (total of 4 years since settlement date):

1- Refinance and draw $325K equity on AND split between two stand-alone IP loans IP for 5 years
2- 2. $620K PPoR 80% Fixed for 2 years and 20% variable with an offset
3. Fund TWO IPs with $325k and go IO for 5 years (if bank allows).

My approved serviceability was around 1.1mil with 220K prior to rate increase.

Thanks,

 

Why don't you draw out up to 80% on PPOR and go LMI on 2 IPs instead of the other way around?

The split in fixed and variable is dependent on your goals and your hedging against interest rate rises.

 

Thanks for the propmt reply Tony.

I might be wrong but reason being that I may not be able to fund two suitable property (for capital growth) with 220K hence thought might be a better idea for draw 90%.

Goal is accomulate as many as I can so having a good surplus in offset to fund the next one will be vital I'd assume, like to know your thought.

 

Do the LMI on the IPs rather than the PPOR.

1. LMI doesn't scale in a linear manner on the price point. The LMI premium for a $1M loan amount is more than double the LMI premium on a $500k loan. If you do all the LMI in one hit you'll end up paying more LMI overall.

2. LMI usually means higher interest rates. Better to have the lower rates on your PPOR as most of the debt is non-deductible. If the deductible debt has the higher rates then you get more deductions. This is a gross simplification.

 

Even when you can embrace it? Getting more equity 100k+ to fund two better properties? However believe this will higher my risk profile with the bank for future lending, isnt?

 

If this is your servicability then doing LMI on your IP is ideal, why do you need to take more equity out of your PPOR and go LMI when your borrowing power is max at $1.1m regardless ?

 

Fair! but also we are talking about 100k+ more equity and potentially this 100k can be parked in offset against PPoR.

Another question is would you refinance with a bank who will be giving you $60K more equity but lower serviceability (250K to 300K less serviceability) or you would rather go less equity and have a higher serviceability?

 

If the purpose is to access as much equity as possible what would be the benefit going with a lender that provides better serviceability but won't give you the equity?
Also which lenders have better serviceability but won't give you as much cash out, what lenders are you talking about?
In my experience, the lenders that are more generous with serviceability typically (but not always) have better cash out policies for releasing equity.

I think it's clear you need to have a chat to a decent broker about what you're looking to do, run the actual numbers to see what your options are.
Consider if multiple cheaper properties are a better investment than fewer more expensive properties.
What's your goal with regard to property investment?

 

The goal is for long term let's say 15-20 years retirement but at the same time not affecting lifestyle/cash flow. CBA gives me more serviceability (1-1.1mil) but done AVM with the result $60K lower than NAB. on the other hand, NAB gives me lower serviceability.

 

Would you be Ok with sacrificing a bit of cashflow for better Capital Growth though?
Who did the AVM's for you with CBA and NAB?
CBA's cash out policy is better but the interest rates and fees might not be.

There are also other better lenders for this that may be more suitable to your situation, so don't limit yourself to the big banks.

 

No sure who did the AVM for both but I approached directly to the Bank as part of my DD, however both happy to lend me the equity. I've heard Suncorp also do better in AVM.

 

Any suggestion as to which lenders will do better on both AVM and serviceability? I will borrowing 80% against my PPoR and 90% against IP.

 

But what's the purpose ?

 

Suppose this can be used to purchase second IP in near future. Might be a good timing for acquisition phase as believe we are slowly passing the top of property cycle. agreed?

Also down the track in 2 years time, I am planning to make my PPoR a IP so I will have a year left to claim 20% of my LMI. Need to say that my current PPoR lender will refund me 20% (circa 4k) of the LMI paid as I am refinancing under 2 years. Believe this is still their policy.
.

 

Suncorp's equity release policy is not great, nor are their AVM's in my experience.

Suggest you use a decent broker, trying to do it yourself means you'll likely miss a better lender and product mix for what you're looking to do.

 

agreed, however I have tried multiple brokers and none could get $1.05 value even with the same bank. Same bank with broker gave me $920K hence I thought I will need to deal with them directly this time.

 

Yet here you are, asking Brokers for advice, just a bit ironic
Suggest you use one from this site, they know their stuff, as I mentioned going direct, means you're limiting your options and risking cross securing the properties as Banks tend to favour that structure, good for them, not for you.

 

Agreed and surprisingly they played it really well for re-financing. Below is suggested from NAB as two separate loans:

valuation 1.05mil (highest amongst all lenders)
Loan 1 - 620k PPoR (I&P variable with offset @ %2.49)
Loan 2 - Equity 220K (Investment IO with NO offset @ %3.5)

I do think it is a good deal, isn't? package is $395 and I can negotiate to withdraw for first year probably. He himself suggested to NOT cross secure which I found it to be strange haha.

 

Highest valuation among the few lenders you've spoken to, which are CBa and NAB?
If you used a broker you could have access to many more lenders with better AVM's

3.5% IO and NO offset I don't think the NAB offer is that great at all, sorry to burst ya bubble.
There are certainly better alternatives out there.

 

5 lenders AVM came back ranging from 880K to 1.05mil and the highest one of the brokers could get was 976k CBA.

Why would you want to offset IO when you have your PPoR setup with an offset? NAB's IO on the package is higher than the base one.

Would do you suggest here? Any lender you had experience with with higher AVM? or any better rate?