Can i refinance my PPOR Loan to IP Loan in anticipation of becoming an investment property

Discussion in 'Loans & Mortgage Brokers' started by Geekyebony, 18th Dec, 2019.

Join Australia's most dynamic and respected property investment community
  1. Geekyebony

    Geekyebony Active Member

    Joined:
    12th Nov, 2017
    Posts:
    29
    Location:
    Melbourne
    I have a Principal and Interest loan with "Bank A" for my principal place of residence. I want to refinance the loan over to "Bank B" to become an Investment loan which will be interest only for 5 years.As part of the refinance process, i also want to take a cash out of the equity. Both "Bank A" and "Bank B" are part of the Big Four just for context.

    I am yet to move out of my PPOR but i am doing this all in anticipation that i will move out in a month or two to go and rent somewhere else. Will the bank that i am refinancing my loan to i.e "Bank B" give me an unconditional approval if there is no serviceability issue or will i need to actually move into a rental property and get my house rented out before i can carry out this refinance ? The reason why this question came up in the first place is that i have been told by a broker that i would need to show evidence of the below before i get an unconditional approval of my refinance
    1. Documentary evidence of how much i am paying as rent.This may be a challenge as i am yet to move and can only estimate.
    2. Documentary evidence of how much my tenant is paying me for renting my own property.
    My assumption was that an estimate of how much i plan to spend on renting and a rental appraisal should suffice for 1 and 2 above respectively. I do not want to move into a rental, start paying rent and simultaneously continue to pay principal and interest on my former PPOR loan for as long as it takes till i get it tenanted.

    I would appreciate if some of the experienced guys on this forum can give me a guide here if i indeed need to move first and get my house tenanted or this loan can be approved based on the estimate i plan to spend on rent and the rental appraisal for my house.
     
    Last edited: 18th Dec, 2019
  2. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    7,925
    Location:
    Australia
    If you could refinance, what are you going to do with the extra? Deductibility depends on what you do with the extra.
     
  3. Geekyebony

    Geekyebony Active Member

    Joined:
    12th Nov, 2017
    Posts:
    29
    Location:
    Melbourne
    My question is not around deductability.
     
    craigc and jprops like this.
  4. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,372
    Location:
    Perth WA
    You should be able to do it based on rental appraisal but they will want you to sign a lease on the rental you're moving into before they give formal approval - these post RC days they don't make decisions on something you 'might' do - so you could certainly set it all up, but you'll need to sign a lease for it all to go through.

    They might do it without a lease but it'd likely need to be done as on OO IO loan rather than INV if you're still living there.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    7,292
    Location:
    03 9877 3000
    Do you need to change this to an investment loan? There's a good chance you can do everything you want, keep the loan classified as owner occupier and enjoy cheaper interest rates.
     
  6. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    3,623
    Location:
    QLD/Australia Wide
    Do you need to refinance it right now or can you wait a month or two?
    You don't necessarily need your place to be tenanted a rental appraisal or full valuation would be fine, however you would need to show evidence you're living elsewhere.
     
    Last edited: 18th Dec, 2019
    Peter_Tersteeg likes this.
  7. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    18,485
    Location:
    Sydney
    Ideally the loan needs to be split. Only some may be deductible (v's the former home). The new $$$ in the equity release will have a different purpose and the lender will want to know what its for. If you advise them its for a property deposit it will cascade a further issue
     
  8. Geekyebony

    Geekyebony Active Member

    Joined:
    12th Nov, 2017
    Posts:
    29
    Location:
    Melbourne
    Assuming that its done as an OO IO loan, will the bank have any issues if the Loan product is then changed to investment loan IO like a month or two after ? after it becomes a rental ?
     
  9. Geekyebony

    Geekyebony Active Member

    Joined:
    12th Nov, 2017
    Posts:
    29
    Location:
    Melbourne

    I would love to enjoy lower interest rates and keep it on OO Interest only but i dont know if there is any issue that can arise if that is done ?
     
  10. Morgs

    Morgs Well-Known Member Business Member

    Joined:
    7th Dec, 2017
    Posts:
    1,407
    Location:
    Sydney NSW
    Unlikely- but the number of lenders doing IO OO is quite restrictive so you'd need to make sure this bit is done right.
     
  11. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    3,769
    Location:
    Canberra, Brisbane and Sunshine Coast
    Agree with Pete

    I wouldn’t be rushing to convert it to a higher rate product.

    Cheers

    Jamie
     
    Lindsay_W likes this.
  12. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    3,623
    Location:
    QLD/Australia Wide
    How bad would it hurt your bank account to pay P&I on the loan + rent for a month or so once you've moved out and can refinance to Investment IO loan?
     
    Last edited: 19th Dec, 2019
  13. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,372
    Location:
    Perth WA
    Depends on the lender - CBA, for eg, has no way to change from OO to INV without a full application. Some will want a whole new assessment...
     
  14. craigc

    craigc Well-Known Member

    Joined:
    25th Jun, 2016
    Posts:
    1,229
    Location:
    Melbourne
    Only item I can think of is serviceability with some lenders may be impacted as you don’t get the negative gearing add-back if classified as owner occ with that lender (ie CBA). Other lenders for refinancing may consider the add back but would depend on the lender.
    The lower interest rate would generally help servicing though.
    Check this details with your broker.
     
    Peter_Tersteeg and Terry_w like this.

It seems that the levelling out of property price rises hasn’t deterred celebrities from investment properties. Nicole has bought her fifth apartment in a complex in Milsons Point in Sydney. This article explains why she may have done that.