Join Australia's most dynamic and respected property investment community

Best approach for my situation

Discussion in 'Property Finance' started by Hodge, 26th Jul, 2016.

Tags:
  1. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    Here's my dilemma- thought i'd write it in dot point form to make it more clearer.

    • Currently building a PPOR. Estimated cost to build $300K ish
    • cash in bank sitting in offset account against IP $310K. Interest on loan is 0% (Ip loan $282K)
    • unused LOC of $240K (unfortunately cannot setup an offset account against this)
    Dilemma-
    • Can fund the build with all cash but will have $0 in the bank. IP loan back to 100% and no buffer for emergency.
    • Use LOC and some cash but cannot claim interest on LOC as this will be a PPOR. But will have plenty cash available for emergency. I'll be creating non deductible debt.

    If it was possible to setup an offset account against the LOC this would have been an easy fix.

    Any ideas??:)
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,576
    Location:
    Adelaide, SA
    Whats the LOC secured against? Convert it to a normal loan with an offset possibly?
     
    Colin Rice likes this.
  3. Kinnon Bell

    Kinnon Bell Finance Broker

    Joined:
    14th Jun, 2015
    Posts:
    474
    Location:
    Cairns
    Planning on buying any more IP's?

    Could potentially debt recycle the LOC once the PPOR is built but that will still chew up a good portion of your cash.
     
  4. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    secured against an IP. Don't like my chances of refinancing as i doubt any bank will touch me for a few years. LOC was set up years ago when lending was easy!
     
  5. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    Yes planning on purchasing IP's once the build is done and saved a bit of money. Thought about debt recycling but like you said it will chew up all my cash.
     
  6. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,339
    Location:
    Perth, Melbourne, USA

    but you are wrong...RAMS Lo doc, 80%, no financials
    read my thread on this, it's your "out of jail card", excellent product, no need to chew up your cash

    I used this product for my 4 townhouse deve, resi loan, my accountant signed off on my income. Accountant also has an out, wears no liability
     
  7. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    @MTR thanks, i will read your thread tonight. What is the catch with these types of products?
     
  8. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,339
    Location:
    Perth, Melbourne, USA
    no catch, RAMS owned by Westpac, I know mortgage brokers who have used this product ..
     
  9. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,339
    Location:
    Perth, Melbourne, USA
    DT
    I think that is not good idea and not something I would recommend fudging the figures as you stated, if your intention is to derail it is not at all helpful to PC members.

    Hodge
    work with your accountant on this one, you operate a business and have projections etc.

    As a developer I have projects in the pipeline and my accountant in part works on these numbers etc. that may fall outside the financial year etc
     
    Last edited: 26th Jul, 2016
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    Fully draw down the LOC to fund the build, once drawn convert it to a IO loan and place the funds in the offset. You will have excess funds and the LOC may not be enough so use $60k or so cash.

    This way if you ever move out you can still claim the interest on the $240k.

    If you want to invest further you should just pay down the LOC/loan and redraw to invest (splitting if you can)
     
    Perthguy likes this.
  11. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    @Terry_w I think you have just hit the nail on the head! Only thing i am unsure about is the "once drawn convert it to a IO loan and place the funds in the offset" part. The loan is already IO but Choicelend (lender i am with) have told me i cannot setup an offset account with the loan. Do you mean refinance to another bank that offers an offset account?
     
    Perthguy likes this.
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    Nope, I meant change the loan type from LOC to IO and stay with the same lender.
    Many lenders will be able to do this as a variation without going through credit, but I know nothing of Choicelend - but think you may have difficulties.
     
  13. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    @Terry_w thanks for your help much appreciated. I will contact choicelend tomorrow and ask the question. I don't think it's actually a LOC but an equity release setup as a SVL.
     
    Terry_w likes this.
  14. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    879
    Location:
    Melbourne
    Choicelend don't have an offset account unfortunately. You will need to change lenders.
     
  15. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    Thanks Tobe just realised this last night.
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    I guess your IP must be with a different lender.

    Without the ability to have an offset account it seems the choicelend was the wrong choice for a lender.

    If you cannot move lenders you might be in a pickle - you might just have to pay down the loan and rely on redraw if needed. (but lose the tax benefits if you move out).
     
  17. Hodge

    Hodge Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    511
    Location:
    Melbourne
    The Ip i extracted equity from is with the same bank. A year ago i done a top up but separate to existing equity release so not to mix funds up. Originally I was going to use funds for an ip so didn't really matter having no offset account.

    At the end of the day i think I'm still better off using the LOC even though i can't claim interest as cash is king. I'd rather have $300k cash at the bank as an emergency buffer. Once the build is complete i can refinance to another bank that has an offset facility.
     
    S.T and Terry_w like this.
  18. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,758
    Location:
    Perth WA
    Is the PPOR land currently unencumbered? If it is, why not close the Choice lend LOC (if servicing is an issue) and refi to another lender for a construction loan that has offset?

    I don't know your situation but there's often ways and means.
     
  19. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,668
    Location:
    Sid en e - olympic city
    The interest rate.
     
  20. sash

    sash Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    3,214
    Location:
    Sydney
    Who is the bank?

    Is it CBA??