Help on loan setup

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.

 

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.

 

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

 

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.

 

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?

 

Term loan - have the funds sitting in a redraw.

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

 

Variable interest only generally does the trick.

Cheers

Jamie

 

thanks guys very helpfull

 

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

 

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

 

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 ??

 

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)

 

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.

 

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

 

Yes

 

excellent.,, thanks once again...