Help in re-financing myy PPOR for investment

I am still learning about property investing. With the recent tightening of investment loans by banks and APRA I need your advice on the best course for me. It is a bit long but please read.

Background
My PPOR home loan is with Bank of Melbourne at 4.2% IO. It is split into two loans $250k and $150k with offset account. Over last 9 years I have managed to make it 100% offset, i.e. I am paying no interest at the moment. Property was valued in 2012 at 550k, I would expect now to be $600k. Property title is on joint names, my wife and myself. Due to health issues my wife is not working and is unlikely to work in future. I earn about $145k gross. I also have about $40K cash earning 3% interest. No other loans.

Scenario 1 - Invest in a new 2br apartment close to Melbourne CBD
I want to invest in a good apartment ($500 - $550k) close to Melbourne CBD. e.g. St Kilda, Nth Melbourne, Parkville etc. How should I restructure my loans? I am thinking of a simple 3-5 years fixed loan for investment. Is it worth buying the investment in my name only to maximise negative gearing or should I still buy with joint title as the portion of rent for my wife will be low tax. When I near retirement I may wish to move to this apartment selling my current home which is far from the CBD.

Scenario 2 - Rent out current home and move in to a new 2br apartment.
Let's say I rent out the current home expecting $390 - $400 per week rent. I then want to buy and move to a new apartment, this I can spent higher up to $650k. How should I restructure my loans. Is it worth buying the new apartment with joint title to minimise capital gains if I ever sell this (e.g. if have to move to care home).

Scenario 3 - Borrow against equity out of current PPOR and invest in ETFs.
With current property market being a bubble and interest rate rising I may chicken out and wish to invest in ETFs. Of course I want to borrow using the equity in my house and claim the interest in tax. How should I re-finance my loan ? Should I split the loan into a $200k line of credit and the rest as IO with 100% offset.

Which bank should I move to for re-finance in each scenario? I want to set up the loan properly.

 

You are asking more than loan structuring advice here. Legal ownership will depend on a lot and you should see a lawyer about this.

Loan structuring is more simple. Just borrow 105% of the new property purchase without cross collateralizing. If you will remain living where u r then consider paying down one of the loan splits and reborrowiNG for the deposit.

If you will live in the new one consider using the offset account money as deposit. But you could still borrow as much as possible just in case your plans change

 

I think having a chat to a good independent financial planner (not linked to one of the banks) will give you some clarity about how to proceed. They can also look at the legal ownership and model out the different options around tax. Are you located in Melbourne?

From the loan perspective, the good news is there are a bunch of banks that can get the job done Before you consider the loan I think you need to decide how you want to proceed.

If the $250,000 split is now on variable you could potentially link that to the offset and put the additional $40,000 into the offset instead of earning 3%.

 

Sorry I think this will look like a stupid question, but I thought cross collateralizing means to use equity in his first property to be as collateral in the new one negating the need to pay down a deposit, which would give him the 105% borrowing capacity.

If he does not cross collateralize (ie use the equity in the first) then how can he borrow 105%?

 

Sorry if I was not clear. The loan is split into two IO loans. I have the same amount of money in each of the offset account. So I am not paying interest anymore. The title ownership question is because I am unsure whether to maximise negative gearing given I am the high income earner, or is it better if 50% earnings to my low income wife. I want to refinance now.

 

Cross coll means both properties are security for loan.

Can do 105% without cross coll.
Eg Property A currently has 60% LVR. Top up to 80% using a new split.
Use that split as deposit to buy Property B, which has its own 80% LVR on it.

 

To access the equity you have two options. The first is to 'cash out' by using the house as security for your 20% + costs in a separate loan split. Then you borrow the remaining 80% using the investment property as security.

The second option, which is what we call 'cross-collateralization' is you throw both the titles at the bank and say 'give me the money'. There are a bunch of negatives attached to this option and no positives for you, so generally you want to avoid it

 

If you are a high income earner and have fully offset you current loans then the next property purchase would give a good opportunity to divert income to your wife.

 

This is where a financial planner can help, or if you are handy with a spreadsheet you can plug in some numbers, make some assumptions and see which option works out the best!

 

Ah so when you say borrowing 105%, it is actually 2 loans to make the 105%:
- 80% on the new one; and
- the rest is borrowing from the equity in the first one instead of using it as collateral

Is that right?
Sorry I will have to talk to a broker. I am probably annoying people by asking too much.

 

Hit the nail on the head

 

Based on limited information of income, good news is you should be able to exercise any of the options presented. Some of it may be a personal choice between upgrading apartments, etc. May also want to consider other options like diversifying assets even within property; instead of having most of your wealth in 2br city melb apartments.

In terms of set up, simple equity pull for 25% of the costs of the next property against your current OO and using the funds the form deposit for the next property should do.

@Anthony Brew - can do this via two separate loans (with independent securities, one making up deposit portion the other @ 80% of the new security value) or cross collateralise with 1 loan with both securities. Makes sense to do as two separate loans.