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How to split the PPOR loan?

Discussion in 'Property Finance' started by Ouchmyknees, 11th Oct, 2016.

  1. Ouchmyknees

    Ouchmyknees Well-Known Member

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    My partner and I plan to purchase our first home together and obtain a PPOR loan (800k, P&I) that can be split into different splits (for example, eight splits of 100k each) so as soon as we pay off one split we can top it up or get a LOC to purchase a IP.

    We want to have separate offset accounts so our money won’t be mixed together so in the future we can adopt the spousal loan strategy for IPs.

    Now I’m a bit confused, if we have separate offset accounts, does it mean we will end up getting 8*2=16 splits? That seems too complicated and onerous.

    Any comments and suggestions are highly appreciated.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You don't need 16 splits, you can just have your offsets attached to the one split each, and when it's fully offset create a new offset against another split, and fill that - and so on. You may end up with 8 offsets at most, if everything was offset.
     
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  3. albanga

    albanga Well-Known Member

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    I have a hard time understanding why you would do this? Why not just have a single loan and when you have equity available, create a new split for the purchse of an IP.
     
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  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Bear in mind some lenders will only allow one offset, so if you want more than one you'll have to go with the right lender.
     
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    There is some sound psych behind having more but smaller splits

    Chunking into a 50 k split and getting it to zero fells better than reducing an 800 k split to 750.

    Yes yes I know, there isn't a difference in net balance but for many this goal management strategy can produce better results .

    Combine that with a Proper debt recycling strategy and you can get some great results

    Ta
    Rolf
     
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  6. Ouchmyknees

    Ouchmyknees Well-Known Member

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    According to Terry_W's tips this is to avoid having to go back to lender and get a new split. Things are better to be arranged at the beginning I suppose.
     
  7. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    There are lenders that will allow you to split post settlement with no assesment reqiured so serviceability isnt factored in assuming you intend to aquire a few IPs. Can be done via a 2 page tick and flick at most and a phone call at the least. Combined with multiple offsetts your options are limited but its feasable.
     
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  8. albanga

    albanga Well-Known Member

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    I gathered the reasoning being it being you would not need to go back to the bank as essentially you are using redraw to invest.

    I just personally have a number of issues with this (well 100k splits anyway).

    1 - It's a good thing to see your bank/broker every 2 years for a financial health check.
    2 - A number of lenders have rules around redraw (min/max).
    3 - A number of lenders don't allow this so you have just minimized your pool of options.
    4 - A number of lenders don't have multiple offsets so you have just minimises your pool of options further.
    5 - What happens when you need more than 100k for a deposit? You tap into another of your available splits and now you have mixed loans. Might be easy enough to fix....might not.
    6 - You have just created a headache for your online banking IMO.
    7 - A lot of equity is made in CG which to tap into requires your lender to value your property and then likely need a new application anyway.

    @Terry_w is a lot more knowledgeable than me, but I am not sure if this is exactly what he would of had in mind?

    I am all for future and I do see reasons this is also a good thing:
    A - No new application so do not have to prove servicing with that lender. In this scenario though I imagine most people will hit a wall with the 80% lender anyway.
    B - More resistant to lender policy changes. If set-up and they change the rules then you have planned for it.
    C - No need to revalue your property so in the event it were to drop in value you have the equity available.

    Keen to hear the feedback from the brokers who advocate this??
    And @Rolf Latham no doubt I do believe it would offer some mental edge attacking smaller sections of a loan. I do however think this can be achieved without all the mess.
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    My idea was that you split first so you don't need to keep going back and splitting later. Once you pay off a split you would just use redraw and then use that money to invest and then be able to claim the interest (making sure no parking with other funds happens). No top ups or conversions to a LOC necessary.

    But having 16 splits may be too much. It will likely take you a while to pay off $100,000 from just saving. So what about just 2 or 3 splits each? And $100k is a bit large - what about $50k?
     
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  10. Ouchmyknees

    Ouchmyknees Well-Known Member

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    Many thanks everybody’s input.


    Yes I totally agree with @Jess Peletier, @Colin Rice and @albanga, having a very specific (and a bit unusual) structure will seriously limit our options and potentially lead to higher rate. And totally agree with @Terry_w paying off 100k with partner’s & my salary will take years, so 50k splits makes more sense to us.

    To make things more complicated, and if you guys would indulge me please, I have a follow-up question:

    We plan to purchase a 1.2m house, our borrowing power is around 500k each (1m in total), and we have about 500k in cash or cash equivalent in my bank account. We want to keep 100k cash on the side to pay for the upfront cost and emergency fund, what do we do with the 400k cash?

    Option 1, purchase the house with 400 cash and 800 loan. This way we have a much smaller non-deductible loan to pay off.

    Option 2, purchase the house with 240 cash and 960 loan, and park the remaining 160k in one or more of the offsets. As soon as we identify any IP I will repay one of the splits and use redraw to get cash, then I will lend the cash to my partner to pay the deposit and upfront costs (spousal loan strategy). This way we can purchase an IP earlier but we have a higher non-deductible loan.

    Any comments and suggestions are welcome!
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Get it while you can is my philosophy. I would borrow 80% upfront if possible and then debt recycle.
     
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  12. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Go to 80% on the purchase so a loan of 960k allowing 300k for deposit + costs (240k deposit and 60k costs) and drop the 200k surplus in a linked offset and use it to debt recycle.
     
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