Is using LOC for a deposit risky?

Discussion in 'Investment Strategy' started by Roshy, 2nd May, 2016.

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  1. Roshy

    Roshy Active Member

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    Hi All

    I recently revalued 2 properties and now I have access to 120k of LOC.

    Presently, I have little cash in the bank but my 'buffer' is mainly the 120k.

    If I use the 120k towards a deposit, how likely would a bank call in on that LOC?

    What other risks are there if I use LOC towards a deposit?

    Thanks!
     
    Roshy, 2nd May, 2016
    #1
  2. Steven Ryan

    Steven Ryan Well-Known Member

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    Sounds to me like the biggest risk is not having enough of a buffer afterwards. Make sure you retain enough "cash at hand" (savings and/or LOC) to survive surprises :)
     
    Steven Ryan, 2nd May, 2016
    #2
  3. Terry_w

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

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    Is the LOC at call?
    It would be very unlikely that the lender would call it in if you have used it, but a possibility that they would cancel any unused portion if they see you as a risk down the track.

    once you have used the LOC it would be best to convert it to a IO term loan - perhaps. This may help serviceability and give you a lower rate.

    Don't forget to unmix it when you get a chance.
     
    Terry_w, 2nd May, 2016
    #3
  4. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Once a LOC is fully drawn, I'd often convert it into a term loan to reduce the rate - unless an ever green IO term is appealing and to honest these days I think we're going to start seeing more of it.
     
    Jess Peletier, 2nd May, 2016
    #4