best option for investment loan

Hi

I would like to seek your expertise to help me in choosing an option to buy investment property and what's the best way to structure the loan for maximum tax deductibility

Below are the two options provided by my existing home loan lender so I can buy an investment property.

1/ Cash out against your current home. line of credit style loan or otherwise a interest only (for 5 years)investment term loan.The surplus funds could either be deposits back to the investment loan or deposited into an offset facility until required.

2/ Using equity to fund a new purchase at 100% plus costs. Establish a single loan for being your purchase price + costs. Use savings to pay a deposit and we would refund you at settlement from the new loan. This is the most common method of financing an investment purchase.

Thank you in advance

 

Number 1.

Number 2 is cross secured and a really poor structure.

 

Thanks Jess

 

Thanks Rolf.
I will definitely go with Option 1.

 

@gkp - Even if structured correctly, be wary of the all monies clause. Dependent on your situation, it may be worth considering an equity release with your current lender for 20%+ costs and financing the remainder with another lender.

 

I keep getting bad brokers.

The first thing they suggest is putting no monies down and using equity to purchase. Only confirmed it was cross collateralized when i asked the question and there was a pause that sounded like "oh **** she caught me" and then "yes, yes its crossing your property but look no need to do it if you dont want to".

They were really counting on me not knowing the difference, because they knew it wasnt the right approach.

 

If number 2 were a loan split to release equity against the PPOR, and i then put that loan amount down to pay a deposit for an IP, does it make the IP cross secured if financed with the same bank?

Also @Terry_w

 

Not necessarily but most banks will cross them unless you specifically tell them not too.

 

I did specifically ask them. They gave the equity release not knowing who i was going with, as i made it clear at the time that it wont be them!

 

Yes and no as they are probably just operating form the knowledge base they know and understand as opposed to deliberately stitching you up. Majority of brokers are ex bankers and many will just do what they did at the bank with no further thought or analysis of the potential consequences.

Definitely go with option 1 and drop excess funds in the offset.

Why not ask a forum broker to help you set this up properly rather than relying on a bank employee who clearly does not have YOUR best interest at heart, mainly through ignorance I would say.

 

Not necessarily. But look into the all moneys clause as mentioned by miximitosis above. This is a clause in loan agreement where you are agreeing for any security held by the mortgagee to be security for any debt you have to them.

 

Thanks, thats why I believe in always moving banks.. Both PPOR and IP I have currently are with separate banks but I got tempted by the lower interest rate in this case.
Have not done anything yet so will reconsider going with the same bank..

 

Go with number 1.

Step 1: Set up an equity release that covers the 20% deposit plus costs (stamp duty, solicitor fees, etc) against your current home.

Step 2: Borrow the remaining 80% against the new property.

Cheers

Jamie

 

A lender will certainly get a judgement and get paid in the end, but if you are with different banks you can buy yourself some time - maybe 6 months to 12 months in which you can sell your own properties on your own terms and can control the funds released.

 

Hi Rolf,
That's what I usually get, a bit of a suspicious lending agent, and I don't blame them. My finances are rock solid, there's no trouble, I have plan Bs and Cs including complete family support and I go P&I and save a very healthy amount off my salary. So one might say why do I even bother with the hassle. Its for having choices and multiple choices. I get the feeling I might be over doing it, but it seems to be a better thing to do and is not hard to do, all I'm really doing is disappointing my existing banks.

It's sort of in the same "why would you do that" bucket as me always going P&I on the properties when others are successfully and intelligently doing IO. It makes me feel like I have sufficiently covered my basis. Just in case.

 

Hi Jamie

I will definitely go with Option 1.
I read Terry's post on Loan structure Tax Tip 1 Tax Tip 1: Parking borrowed money in an offset account

After reading 10 pages this is what I understood
1.Borrow under a new split
2.Transfer borrowed money into a clean offset account.
3.Immediately pay back into the new loan split, carefully avoiding paying it off completely
4.Then borrow money using redraw when needed

Am I missing anything here that i need to be aware of?

Thanks

 

Hi Terry,

I will go with Option 1 for equity release.
After reading your post Tax Tip 1: Parking borrowed money in an offset account

I understood the below way to use offset and redraw facilities of the new split

1.Borrow under a new split
2.Get paid into a clean offset account. 3.Immediately pay back into the new loan split carefully avoiding paying it off.ie; $100,000 split, pay back 99,900.
4.Borrow it using redraw when needed.

Am I missing anything to consider.

Thanks

 

Thanks Jamie.Will definitely go with Option 1.
I need to request my lender to create split loan with offset and redraw facilities so I can follow the steps mentioned below

1.Borrow under a new split
2.Get paid into a clean offset account. 3.Immediately pay back into the new loan split carefully avoiding paying it off.ie; $100,000 split, pay back 99,900.
4.Borrow it using redraw when needed.