Extending Current PPOR loan for investing purpose

Discussion in 'Loans & Mortgage Brokers' started by Big A, 5th Jan, 2020.

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  1. Big A

    Big A Well-Known Member

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    Looking for some thoughts / opinions from the resident brokers here.

    Currently have a loan on the PPOR through Westpac with what I think is a good rate, 3.29%. P&I and started at $1.4mill but its now down to around $1.2mill. Its fully offset at the moment.

    This year I was thinking I would like to start using the loan as a LOC of sorts and take advantage of the low rates to increase the equities portfolio or for other investments. So what I want to do is increase the loan to the max available and also take out another loan against an investment property that I currently own that has no loan against it. This way I have maximum access to cheap debt to use for when investment opportunities arise.

    I have a dedicated relationship manager with the bank that can help me increase the loan and take out the second loan. But to be honest with you I am getting frustrated with there lack of service to date. They rarely answer the phone or return my call unless I ring them multiple times. Same when I email them, it takes multiple emails to get a response. There just seems to be no real sense of interest in servicing there clients these days.

    I have not dealt with a broker for loans in many years now as I have been fortunate enough to have the big banks fight for my business. But I am considering whether its worth considering going back to using a broker purely for the customer service aspect. A bank employee has not personal incentive to be responsive and act quickly on my loan needs. A broker only gets paid if they get my loan done and keep me as a customer. So there is much more incentive to provide good service.

    So for the brokers out there the question is can I get a better rate than 3.29% on a loan over $1mill and just under $2mill for PPOR P&I. With the option of a second loan on an investment property of say another $450k. PPOR is in individual name and investment is in a family trust. Ideally I would prefer to stay with Westpac as all my personal, business and trust accounts are with Westpac. I moved everything from CBA a few years back as they were even more useless.

    And as some one who generally has no issue in getting loans approved going straight to the banks what other advantages are there in using a broker other than hopefully better service compared to dealing with the banks directly?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That is not a very good rate, you can certainly get better.

    Keep in mind borrowing more money for shares etc will need, generally, a letter from a financial planner - which might require a SOA. And the rate will be at investment rates.

    Best not to have all loans at one bank, especially trust and company loans with personal.

    Also keep in mind the broker won't probably make any commission out of the loan if it is fully offset.

    since each lender has different featres and policies using a broker means you can choose a lender with the features you need - which Westpac is probably a good fit for generally.
     
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  3. Big A

    Big A Well-Known Member

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    Thank you @Terry_w .

    You said borrowing for shares would attract a higher rate. But I will be borrowing for property and then using the funds for whatever I please. Is that an issue when you already own the investment property with no debt. Will the banks want to know why you are opening a loan against it and what you are using it for?
    The plan is not the have the loans offset but draw them out to invest the money. That way I get use of cheap debt to make money investing and the broker makes there money when I draw on the loan.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Hi Big A - sorry should have said 'borrowing for anything other than the purchase or improvement of the main residence would generally be at investment rates. Lenders don't like lending for random spending. They want to know what the funds will be used for and often want to try to control that use - such as only releasing it at the settlement of a property being purchsed.
     
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  5. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    As Terry indicated, 3.29% isn't a great result for loans of that size. I think the banks tell you what they want you to believe.

    Your loan is currently classified as owner occupier. If you set up an equity loan for future investment, Westpac (and most other lenders) will classify this as an investment loan and the rates will be higher.

    Most of the brokers income is based on the balance of the loan, net of offset, measured 1-2 weeks after the loan is set up. Odd are you won't spend all the money immediately, so I wouldn't expect to make much from this sort of deal. Frankly though, that's the broker's problem, not yours. There are ways to make this a win-win for yourself and the broker.
     
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  6. Big A

    Big A Well-Known Member

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    That’s annoying. What if we said that we are borrowing to pay back a loan that we personally made to the trustee / trust to buy the investment property originally. Which technically is true.


    Do we need to set it up as an equity loan. Currently the loan is split into 2. Roughly 400k and 800k. The 800k is sitting in the loan as there is no offset. And the $400k has an offset fully offset. I think the property is fairly valued at around $2mill. So should be able to increase the total loan. Do they really get that fussy with what you use the money they lend for and how they classify the loan.

    Unbelievable these banks. I mean if I am using my money that I have sitting in the loan or it’s offset for whatever I want will they change the status of the loan to anything other than a loan for PPOR? It’s ridiculous.

    And this is why I haven’t bothered with it to date. Banks are painful to deal with and this is more just to give me options to improve investment performance than a out of necessity.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    They would probably treat it as cash out if a related entity.
    Otherwise would want proof of the loan - loan agreement and evidence of repayments etc
     
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  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It shouldn't be an equity loan probably.

    And it is known as 'responsible lending' - see the NCCP Act.
     
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  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    By the sounds if it you've already got everything in place. If your loans are fully offset or effectively fully paid via redraw, they can act as the equity loan. As long as you're careful, it should be fairly straight forward to claim the interest on these loans as well. Additional loans (which would be more expensive) may not be necessary.
     
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  10. Big A

    Big A Well-Known Member

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    Oh I see. Yes the banks want to come across like they are responsible and care about what's best for there customers. How noble of them. :p
     
  11. Nodrog

    Nodrog Well-Known Member

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    In our case I don’t get too hung up about the interest rate. I consider debt best used for exceptional equity opportunities “only”, then paid back ASAP. Even then it’s used very conservatively. Even with our Offset Account where interest can’t be claimed I’ll borrow for a great opportunity then pay it back as soon as next round of dividends / distributions / SMSF and PSS pensions arrive. Given the very short term the interest expense is negligible.

    One day this enthusiasm for high levels of debt will result in a lot of pain. I prefer to be conservative, use it wisely only for excellent opportunities then pay it back ASAP ready for the next generally infrequent worthwhile opportunity.
     
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  12. Big A

    Big A Well-Known Member

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    Thanks @Peter_Tersteeg . Yes I do have something in place that I can use already. I guess the line of thought is can I get a better rate and can I increase the amount I have available to me at that better rate and without the process being to painful.

    I know from a serviceability point we will have no issues at all. But the fact our income comes from ownership in a business and investment income which is all through company and trust holdings rather than individual ownership complicates the process.

    I have never been a fan of leveraging to invest outside of property. But with the option to borrow at 3% or below its something that I am now willing to consider. That's why I would only consider it against property to get the lower rates. Or else I have a significant non direct property investment portfolio that I could borrow against.
     
  13. Nodrog

    Nodrog Well-Known Member

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    +1
     
  14. Big A

    Big A Well-Known Member

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    Hey @Nodrog . Thanks for chiming in. I hold your opinions and advice highly.
    I am not to hung up on the interest rate as 3.29% is not terrible. But if I was going to increase the loan and go through the application process I might as well look for the best possible rate.

    Initially I was looking to have this available credit for the same purpose you mentioned. Which is a great equities buying opportunity. But now I am considering using some of it for just general investing in assets that I am reasonably comfortable will pay me a yield greater than the interest rate I am paying. These being the property trusts and mortgage syndicates I am already invested in. Again this would be at fairly conservative levels compared to the portfolio value. If I am comfortable enough having a majority of my wealth invested in these products then adding a small say 20% LVR worth of debt against the portfolio value at low rates is not unreasonable.

    Keep in mind I am still in full accumulation mode and earning income from work as well as investment income. Maybe if working income was to cease then I would be less willing to hold debt for additional investment.

    And this is why I want to increase the available credit. So I can use some for additional investments now and still have some spare ammo for when a equities buying sale comes along.
     
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  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Is there any reason to keep the main residence loan at $1.2mil?

    You could just debt recycle the lot and that would overcome the cash out restrictions and make the interest deductible if done right
     
  16. Madcatters

    Madcatters Active Member

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    What are these ways? I’m considering getting a top up soon but want to do that well in advance of securing another loan for an IP, so the top up funds may be sitting there unused for six months or so...
     
  17. Archaon

    Archaon Well-Known Member

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    Is it possible to pay the 400k split on the PPOR back, use those funds to buy equities, then borrow against the investment property to pay down the 400k split, or would the split need to be paid out?

    @Terry_w @Peter_Tersteeg ?
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes, but why?
     
  19. Archaon

    Archaon Well-Known Member

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    A genuine reason to borrow against the investment property that is fully paid off.

    If the money borrowed on the IP paid the 400k split back, which was used to buy shares, wouldn't it still be investment borrowing and tax deductible?

    And if the split didn't need to be closed when the money was borrowed against the IP, couldn't you further use those funds to buy equities?
     
  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If the property is fully paid off you have to disclose the purpose of the loan when borrowing against it.

    But yes you are on the right track, you can loan recycle by paying off one loan, but not closing it and then reuse that loan with interest deductible on the thing it was used for - provided income producing.
     

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