Apparently it's okay to xcoll?

Why not speak to a good broker about it? It's not a one-size-fits-all thing, so best to get specific advice.

There's no point trying to untangle it yourself only to stuff up your deductions. There's plenty of brokers on the forum who do this all day long and it doesn't cost you anything.

 

I agree in general but it could have been a broker than got them into this mess

 

Thanks Terry, look forward to understand it more. Can you include figures. I don't understand what you mean by remainder borrowed against property B itself.

 

Fixed

 

Thanks @Jess Peletier, I'm interested in what brokers suggest for someone starting with using equity from PPOR with no mortgage for a IP, or what they normally advice as a general loan structure as I understand there are various ways to do it properly and with the right lender.

 

My investment partner bought an investment property for $465,000 on a 105% lend (total borrowings $482,000), cross collateralised with an unencumbered main residence (MR or PPoR). That was a bad structure but we didn't know better at the time. This is how I would structure the same deal now:

IP loan of $372,000 (80% LVR)
MR loan for the balance, which is $113,000 .

The MR loan can be a standard mortgage or a line of credit. It makes little difference really.

Down the track you can refinance the IP loan to pay down the MR loan.

If you want to buy another IP for (say) $400,000, you can set up a new split against the MR (split 2).

IP2 loan of $320,000 (80% LVR)
MR (split 2) loan for the balance, which is $100,000

I agree with @Jess Peletier though, speak to a good broker.

 

@pinewood

You'll find most brokers and lenders will want to cross-collateralise your PPOR with the new IP - it's really important this doesn't happen.

@Perthguy is right, you're best off getting the deposit and costs for the IP in one loan split secured by your PPOR, and then the remaining 80% can be a separate loan secured against the IP.

 

Why would most brokers want to do this?

 

Less work for them but they still get paid the same amount. It locks the borrower into one lender. More business for the broker when the borrower wants to uncross.

 

I think mainly due to ignorance. They just don't know. Or they may know enough to realise that borrowing 105% of the purchase is good but not enough to know the implications.

A little knowledge is a dangerous thing.

 

Most don't know any other way. Often they come from a banking background where it's pushed as the way to do things and they never have any exposure (or inclination to find out) that there's a better way.

I don't think they are out to get anyone, it's just they don't know what they don't know.

 

Yes but not a PC broker.