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Help on loan setup

Discussion in 'Property Finance' started by edge10, 27th Jul, 2015.

  1. edge10

    edge10 Member

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    Hi,
    I would like to know the best way to go about investing into property.

    I currently have a loan that is $320, and the house is worth $620. What is the best way without using any of my own cash to invest into property.. I can see myself staying in our current home long term as in I have no plans on moving ( I do NOT want to turn it into a investment property). This is where I want to live.
     
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    At 80% LVR you have $176,000 in equity so you should pull out the equity and structure the loan as follows:

    Loans against current PPOR:

    Loan Account 1: $320,000
    Loan Account 2: $176,000

    Loan against IP:

    Loan Account 3: $xxxx

    Do NOT a) increase the $320,000 to $496,000 and b) cross securitise the properties.
     
  3. edge10

    edge10 Member

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    ok, under Loan against PPOR do I make it Interest only or leave it as Interest and Principal?>
     
  4. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    I would keep it IO so long as you are disciplined with your funds due to the following reasons:

    1. Enables higher borrowing capacity (for the time being)
    2. You are contracted to make lower repayments (will work well if cash-flow isn't there on a particular month)
    3. Higher negative gearing if you convert the PPOR into an IP in the future
    4. Allows you to accumulate cash faster in the offset in order to use as a deposit for the purchase of another property.
     
  5. edge10

    edge10 Member

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    ok , one more question would you recommend
    Loan Account 2: $176,000 to be a Line of Credit or would you say this is a bit risky?
     
  6. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Term loan - have the funds sitting in a redraw.

    LOC is more expensive and carries a repayable on demand clause.
     
  7. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Variable interest only generally does the trick.

    Cheers

    Jamie
     
  8. edge10

    edge10 Member

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    thanks guys very helpfull
     
  9. edge10

    edge10 Member

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    just before I go. what is a Term loan.. I have never heard of this before..
     
  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    A loan that goes for a set term, eg 30 yrs.
     
  11. edge10

    edge10 Member

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    thanks Jess, would you say the biggest difference then is
    Line of Credit means I only pay interest on what I have used

    whereas the Term loan I will be paying interest on the entire amount regardless of what I have used from it.

    is this correct ?

    if I am using any of these methods to purchase an Investment property can I still claim the interest as it was used to purchase an investment property ??
     
  12. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Nope.

    You only pay on what you use with term loan too.

    Biggest different is rate - and the bank calling on the LOC (rare but possible)
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    With both loans you'd only pay interest on what you have used, as with a term loan the funds would be either in redraw or in an offset account.

    LoC have their uses but often a term loan will do the trick. It depends which lender you're with as to the best way in many cases.
     
  14. edge10

    edge10 Member

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    thanks Jamie, and Jess,, with the term Loan if used to buy Investment "A" can I claim the interest ?
     
  15. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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  16. edge10

    edge10 Member

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    excellent.,, thanks once again...