Loan structure for temp IP

Discussion in 'Loans & Mortgage Brokers' started by John_Smith_ADL, 6th Sep, 2021.

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  1. John_Smith_ADL

    John_Smith_ADL Member

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    Hi,

    Hoping for the collective wisdom of the folks here :)

    We currently own our PPOR (< $10k owing but fully offset) with approx $200k redraw available.

    We are purchasing a new property, but it is tenanted for 12 months after which we'll move in and sell our current PPOR.

    I'm thinking about the following setup:

    Loan A for 80% of new property secured against that place
    Loan B for 20% of new property against existing PPOR to release equity.

    Steering away from using redraw as current rate is terrible (just under 4%, but has been fully offset for a couple of years so didn't bother chasing better rate), and importantly, I understand if I used these funds it wouldn't be deductible.

    Alternative that was proposed to me was to take out loan for 100% of new property, with bank holding both properties.

    Is there an upside/downside of either approach?

    Under first approach, once PPOR sells in 12 months we'd use proceeds to pay off Loan B and then park remainder in an offset against Loan A.

    Thanks in advance.
     
  2. momentum26

    momentum26 Well-Known Member

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    I always prefer bank holding no more than one property per loan
     
  3. John_Smith_ADL

    John_Smith_ADL Member

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    Thanks, while I'm a novice in this area, I'm heavily leaning to two separate loans, with the smaller being retired in 12 months once we sell our existing PPOR. Both would be with same lender, and have been advised no additional fees for holding 2 separate loans.

    If there's no material benefits to having a single loan then I'll go down the other path. Thanks.
     
  4. Lindsay_W

    Lindsay_W Well-Known Member

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    Who proposed this alternative? The bank?
    Do not cross secure the properties as suggested, there is no benefit (apart form making their job easier) and it will make it messy when you want to sell the current PPOR.

    Create a separate loan split secured against the PPOR, 20% plus costs, and an entirely separate loan for the remaining 80% LVR secured against the new property.
    Ideally with separate lender.
     
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  5. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    You'd make seperate loans for each property.

    If you want to take it 1 step further, you'd want to play around with the LVRs on each loan to get a bigger discount on the rate.
     
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  6. John_Smith_ADL

    John_Smith_ADL Member

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    Thanks for the advice, we have gone down this path (although both loans with the same lender).
     
    Lindsay_W likes this.
  7. Terry_w

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

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    It might be easier to just debt recycle the 20% deposit and costs get a new loan for 80% of the purchase price.
     
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  8. Beano

    Beano Well-Known Member

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    Yes initially that's a good idea but not very practical with a mature portfolio.
    PS if I went for a 12mth loan I would have a loan to fix every three days. :p
     
  9. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    Sounds like typical bank tactics to cross collateralize which isn't a good structure, you can "get away with it" if LVRs are low or a rising property market, sub 60% for example, however, it's rare, or never a necessary avenue to walk down.
     
  10. Lindsay_W

    Lindsay_W Well-Known Member

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    Double check your loan offer documents to ensure they haven't cross secured the properties - I've seen this happen when people are told 'they won't be crossed' only to find out after settlement they were in fact crossed.