Loan structure

This is ok and is not cross collateralised security because there is only one security per loan

 

I can understand why you say that (not borrow more than needed for the deposit) but I also think I have heard some people suggest always access as much of the equity as you can at the time.

The logic of that I assume would be that you can always repay the excess funds having it as available redraw, but then if you need those funds for another investment (or to cover unexpected significant costs) then you can always redraw it without having to get a refinancing/revaluing done to assess available equity. It also protects agains the risk of a lower valuation occurring for whatever reason at that time.

Is that sound reasoning vs the idea of only refinance to what is needed?

So as an example, using numbers that make it a significant enough difference to demonstrate the question:

Secured against PPOR (440k value = 80% LVR)
- 200k OO loan
- 152k IP loan (equity).

New Investment Property (Value 450k + 25k costs)
- 360k loan (80% LVR on property value)

Total loan values received for IP = $512k
Total cost of IP=475k
Difference = 37k. This would then sit against the 152k loan, reducing the effective amount to 115k. So instead of only having taken that equity loan as 115k to get the same end loan result, I would now have 37k already available to me at any given time to use (for investment purposes so not to contaminate loan). It also gave extra flexibility in case the choice was decided to increase the purchase price (assuming the original one allowed for that to be affordable).

Is there any negative to the above process as opposed to trying to predict the right value for the equity loan in the 1st place?

 

I always get as much equity out as possible, for a few reasons...mainly though, that what is there one day, may not be the next!

I've had clients before who waited to access equity and when the were ready, the equity wasn't - bank policy changed and valuations can also be an issue.

Plus, getting it all at once removes the need for another application for a small top up - no-one likes applying for loans, so do it once and it's done

 

Thanks Jess, that matches my thinking.

really appreciate everyones answers and feedback. Reading/listening to so many things to get an idea and having a forum like this to help clarify and straighten out thoughts is really helpful.

 

keep in mind that there is no right/wrong way to do things, but multiple ways with each way having different advantages and disadvantages.

 

thanks very and thats a good point. I mostly wanted to make sure the ways I had arrived at in my head made sense and see what others with more knowledge could provide in picking up anything I had well off track. At least from there I should be able to slightly better understand if alternate advice seems to be an alternate way of doing things or simply bad advice! (and not question if my understanding is simply wrong to begin with!)

 

This thread might assist - but keep in mind it was written 5 years ago now

Terryw’s Ideal Loan Structure Terryw’s Ideal Loan Structure

 

That’s an excellent post terry and takes what I’ve gathered from this thread and gives that extra detail

what I’m unsure about from that is the transactional nature of Loan B.

is that common now to be able to pay all deposits etc direct from that equity loan split?

Does that require it to be a line of credit (and is a LOC feasible vs a regular loan in present day, eg what are interest rate differences to IO loan)?

And if not how is that generally handled re keeping that balance to/near 0 pre purchase, then using the redraw/access of those funds as needed quickly and conveniently?

 

Yes you would borrow to pay deposits. No LOC is not necessary. You will need to consider the tax aspects such as I outlined in Tax Tip 1
Tax Tip 1: Parking borrowed money in an offset account Tax Tip 1: Parking borrowed money in an offset account

 

cheers terry, I understand the you can/do borrow for the deposits, it was more the direct transactional nature of the loan account that confused me. I dont imagine this is common and more need to have the money repaid into it and redraw from it (which would be a delay to access and need to go to another account in most cases? I assume this is all timely enough though - this is assuming I dont need/want an offset linked to the IP loan as that will usually have higher fees and only be needed for this pre purchase period)

 

@Terry_w - how should I get in touch?

 

I can't make it too easy for you.