Equity release on PPOR via split - does this attract PPOR rates?

Hi all,

I'm looking to do access equity via a separate loan split secured by my fully offset PPOR ala Terryw ideal loan structure

1. What interest rate is applicable to this split loan?

I had thought it would be the attractive PPOR rates. but was told that if I am using the funds for investment purposes (like stamp duty for IP or shares) then IP rates would be used

2. Would it help my case if i told the bank i was using the funds to do a PPOR reno (or some non investment purpose?).

3.If only IP rates are applicable, it shouldn't matter which loan i use for equity release (IP or PPOR) - whichever property has the most equity

 

1, Depends on the lender and what you are using for. generally investment rates
2. If you use it for the main residence it would be oo rates
3. which security? No tax difference perhaps but could be legal and lending things to consider.

 

Some lenders base their rates on security provided rather then usage.

While some banks Bass the rates on what youre using it for.

 

Circa 80% of lenders take that approach and circa 20% will do it at owner-occupier rates in spite of its usage.

Wasnt so long ago the rates were the same for IP and OO, the good ole days.

 

Thanks all, so I'm guessing the 'purpose of the funds' doesn't really impact anything from CBA's perspective, just to determine the type of interest rate to apply.

Its not going to impact servicing calcs ie how much i can borrow

 

What if you say it is for new cars, holiday, update to the garden, new furniture, misc lifestyle enhancements and an emergency fund

 

Well yeah it does, because rates are higher for investment loans the serviceability rate will be higher too, therefore impacting serviceability.

 

If i was using the funds for shares, not sure if they would consider the dividend income for serviceability purposes. If i were to use the funds to put towards another IP, i guess it would be easier for the bank to quantify the returns for a certain property address

 

They won't. even if you use the funds to buy an IP the potential rent won't be included unless you have a contract for that IP purchase at the time of applying.

 

Yes. Key phrase "non structural renovations". Alternatively,

Generally only a contract for sale of property will have a positive impact on servicing calcs. However once you've invested the equity, after a couple of years of adds to your taxable income you should have a positive impact to servicabiliy if you are wanting to access further equity again.

 

They won't allow the use of the dividends as income as you don't own the shares yet, if you say it's for shares they may want a letter from a planner or similar confirming what shares you intend to buy.
They won't allow rental income in serviceability calcs for the equity release, only on the loan for the actual purchase of the IP.

If you say you're using it for 'non structural renovations' that can work however if it's more than $100K equity being released with CBA they may still want some rough numbers for the estimated renovation costs, without needing fixed price quotes

 

Awesome - thanks all!