Loan options for financing IP

I purchased my first IP in July and am now on a mission to learn more about what I should have known and didn't when I invested. As a result I am arming myself with books, attending seminars, reading through this forum which I unfortunately stumbled upon only later and trying to make up for lost knowledge!

So as a newbie I would like to know if what I did to secure my loan was advisable in terms of financing my 1st IP as reading around most people seem do an equity release from their PPOR for the 20% deposit but when I applied for my loan through Bank West I took up a 100% loan ($405K) from equity of my PPOR. I thought that was my only option. Is this considered a bad loan structure? Would it have been better for me to have done a line of credit?

My question is how can I moving forward put in place a strategy to purchase more properties?

 

Sounds like you have used your PPOR as security for the investment property. This is bad for several reasons do a search on 'cross collateralising'.
see
Legal Tip 8: The legal side of avoiding cross collateralising properties https://propertychat.com.au/community/threads/legal-tip-8-avoid-cross-collateralising-security-properties.562/

and to fix it See
https://propertychat.com.au/community/threads/loan-tip-uncrossing-crossed-colleralised-loans.579/

 

Thank you so much Terry, I really appreciate your response. I was afraid that was the case but now I know better and I will do something about it. I wonder why I was not given the options as with my ignorance I thought it was my only way of getting finance for my 1st investment property and that was how it was.

 

Lenders will generally not give you alternatives as this benefits them. If you default they have more collateral which they can take possession of.

 

Here's an overview of practical reasons to avoid cross collateralisation:
https://propertychat.com.au/community/threads/cross-collateralisation-10-reasons-to-avoid.153/

Unfortunately I think the structure you've got along with the lender you've chosen will create significant problems if you intend to keep investing. Here's some concerns:

1. BankWest have a track record of low rates initially, but they go up over time.
Since about 2007 BW have consistently introduced products promoting cheap rates. Then about 2 years later they replace it with a new cheap product. The product that you took then increases and becomes very expensive. If you look at their product range you'll see numerous products priced at 5.07%, 5.47%, even higher. Each one of these had a market leading rate at some point. Frankly I think they're a fundamentally deceptive lender, this is a track record that has been in place for over 8 years now.

2. BankWest is very conservative in their lending calculators.
Compared to most other lenders, BW won't lend anywhere near as much as other lenders based on your income and financial profile. Furthermore they're restricting investment lending to 80% LVR. You'll run out of borrowing capacity with BankWest far sooner than you would with almost any other lender.

Most people choose BW because they believe they're getting a cheap loan. In reality they're not.

Furthermore your loans are cross collateralised. At some point in the future you'll might want to access more equity in your properties (so you can buy more properties). BW's current lending policies will stop you from doing this and the cross collateralisation take away a lot of your flexibility to move lenders or to work around the problem.

The best thing to do would be to move your properties away from BankWest as soon as possible. There are alternatives with similar rates that will continue to remain competitive and at the same time you can restructure the loans properly that will benefit you and not the bank. With two properties this is relatively easy to fix. Add more properties and it just gets harder and more expensive.

 

Thank you Peter. I would like to seek your advice and wonder if you would be willing to help. I am Melbourne based.

 

+1 to what Peter said. There's heaps of great deals out there at the moment, it's the perfect time to sort it all out.

 

I've got to run (my wife's birthday tonight), but you're welcome to call me tomorrow. Even if it all doesn't need to be refinanced, I'm happy to review what you've got and give you some pointers.