Advice for IP Loan

Discussion in 'Loans & Mortgage Brokers' started by Zokie, 21st Sep, 2021.

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  1. Zokie

    Zokie Member

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    Hi all,

    I think this is the right thread, if not I can move to the appropriate.

    After a bit of advice about the structure of my loans as I’m wanting to start down the path of IP ownership, based on my current fixed loans I’ve obviously made mistakes. I have full intentions of engaging one of the brokers on this forum once I’ve done more research, am trying to get more ideas as of now. I’ve tried to include all the relevant details that are considered from reading various threads, if I’ve missed anything please let me know, apologies for the long post.

    Current Details and PPOR
    • Combined income around 300k pa.
    • I have a child in daycare till end of next year, so am looking for an IP now and then others once daycare costs are gone.
    • Intention for IP’s is to build a sufficient retirement income (currently late 30’s) so would like to hold IP’s as long as reasonably possible.
    • No other debt besides the PPOR mortgage.
    • No intent to move in the next 15-20 years or large expenditures anticipated.
    • PPOR: Around 1.9-2m
    • Total Loan: 673,000
      • Variable: 160,000
      • Fixed (Expires May 2023) 173,500
      • Fixed (Expires May 2025): 339,500
    • Total Savings: 225,000
      • Variable Offset Account: 110,000
      • Variable Redraw: 50,000
      • Savings Account: 65,000. Parked this amount here yesterday till we can figure out what to do with it
      • Approx 7k savings per month
    IP Intentions, please correct my assumptions.
    • I know it is recommended to borrow 105% loan cost but given I have funds sitting there which is not generating income and my intent is to hold properties for the long term, is it a good idea to use this against the IP? Else, I’m not sure what I can do with the funds now (0.25% savings account is pointless) and am continuing to grow this amount monthly.
      • Intending to look for an initial IP in the 450k range (up to 500k total). If I put down 20% deposit I’d have a total initial outlay of $117k
        • Deposit (90k), BA Fee (used 2% = 9k), Misc Costs (4k), Stamp Duty (QLD, 14k)
      • This would use the 65k in savings plus the 50k in Redraw.
    • I’ve read on other threads that I should not cross contaminate loans. If this approach is used, would I need to request another loan for the $50k sitting in redraw?
    Additional Queries
    • I have made a quick investment property spreadsheet but am sure I’ve missed/mis-calculated plenty of the variables. Are there resources on this forum to access a correct calculator/spreadsheet?
    • I will look at engaging a BA for the IP purchase as I’m not familiar with Brisbane, have been there a few times for holidays and drove around some areas to get a feel.
      • Will contact some of the brokers and BA’s on this forum so I don’t think it’s necessary to ask in this thread.
    • One thing I couldn’t find are recommended accountants?
    Thanks in advance.
     
    Never giveup and Lindsay_W like this.
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    no

    why aren't these funds in an offset account?
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Don't use cash for an investment - you'll be better off debt recycling your cash - basically, paying down the variable split of your PPOR and redrawing it for the investment purchase - this will make that variable split deductible.

    Get specific advice as there are a few quirks to it.
     
  4. Lindsay_W

    Lindsay_W Well-Known Member

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    It depends on personal circumstances, not always recommended to use 105% loan.

    Have you looked at any other investment types besides property?

    You could split the existing loan to get access to the $50K as a separate loan split, then the redraw becomes tax deductible too
    If you just use the redraw as it it will certainly 'contaminate' your ppor loan
     
  5. Zokie

    Zokie Member

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    Thank you all for the quick replies, will no longer be considering using the cash against the IP.

    I have not explained it correctly. My current variable loan has a balance of $160k of which my linked offset ($110k) and redraw ($50k) has zero'd it out. I'm still making monthly payments which are full principal amounts.

    In addition to these amounts, I have another savings account with $65k that I can't apply to the variable loan. I have called the bank regarding the fixed loans and have been told that I can only put in $30k a year against each. If I do this, I can only redraw $10k a year from each account. If I did this, I'd still be left with an extra $5k and additional monthly savings I am not able to use against my PPOR.

    I haven't considered other investment types, could look into that but am wanting to purchase an IP before doing so. It does sound like I should look into it.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    have you considered breaking the fixed loan?
     
  7. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Regardless if you break your fixed rate or not you can still draw out another loan split to draw out the 20% deposit + stamp duty you need for your investment property. As we don't know what rate youre on currently we can't comment too much if you should refinance for a better rate or not.

    You could even draw out $500k equity and buy the investment outright if you wanted to.

    Drawing equity out based on your current LVR is definitly not a problem.

    You'd want to borrow maximum amount possible instead of using your own cash for the investment.

    Borrowing capacity by the looks of it is doable for what you want to do.
     
    Last edited: 21st Sep, 2021
  8. Zokie

    Zokie Member

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    Thanks for the additional advice. Honestly didn’t think of breaking a fixed loan. Sorry for the additional questions.

    Have rang the bank to get a break cost, the loan up to May 2025 will not incur a break fee (currently at 2.79%). I will be looking to break this and convert into a variable loan (2.94%).

    With the additional 65k in savings, is it better to pay this against the 339,500 and have a loan of 274,500 or keep the entire loan amount of 339,500 and put the 65,000 into a linked offset?
     
  9. Lindsay_W

    Lindsay_W Well-Known Member

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    Chuck it in the offset
     

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