Loan Tip: Borrowing more When Buying Main Residence

This strategy is simple yet often overlooked.

Strategy: When buying a new main residence borrow 80% to acquire it, whether you need to or not.

Example
Bart has $400,000 cash and wants to buy a new main residence for $500,000. He plans to borrow $100,000 and then later set up a LOC to invest.

He borrows $100,000 and settles on the purchase. Then he asks for a $100,000 LOC and the bank starts asking questions. Eventually, after giving a DNA sample Bart is approved, but they want a statement of advice from a financial planner saying that Bart will invest in shares.

Lisa is in the exact same situation. Lisa gets some credit and tax advice and borrows $400,000 to buy her main residence. At application stage she splits the loan appropriately into 3 splits so that at settlement she can pay down 2 loan splits and is left with one split with $100,000 outstanding.

The 2 paid down splits could be used to invest at a later date.

· Lisa had no questions asked about future investment plans,
· Lisa got the lower main residence rates for all of her splits (prob paying 1% less than Bart).
· Lisa isn’t incurring any extra interest or costs, and won’t until she draws on the splits
· Lisa has split the loans for tax purposes already
· Lisa has saved by not needing to pay a financial planner to satisfy the lender.

In summary, With appropriate structuring, Lisa has overcome the cash out restrictions and gotten a lower interest rate.


Not that there may be claims that a broker is doing this for the sole purpose of increasing commission. However under the new commission rules the commission would be paid on the loan limit less any offset or amounts paid back. So it should not result in more commission with most lenders unless the excess money was immediately used.

Also not that the regulators may not like the subverting policy part, but there is not much you can do about that!

Originally posted on the structuring website: Loan Tip: Overcoming Cash out Restrictions When Buying Main Residence – The Structuring Blog

 

wow

 

Hi Terry, regardless of the actual amounts borrowed, do any lenders actually lend with multiple
splits with no question asked right during the application process?

Thanks,
FXD

PS: Happy new year to everyone here too!!!

 

Two or three splits, no real big deal. I've recently had a client ask for 8 splits upfront, which is probably a bit excessive. Bank said no, that's excessive, they'll do 3. Client now wants 5, bank has said 2. The negotiation is ongoing.

 

i regularly do 6 for clients and have never experienced any push back

 

Does each split attract fees & charges ongoingly?

Thanks,
FXD

 

depends on the bank and products.

 

Depends on the product. For products under an annual package fee, there's usually no additional charges for splits.

 

I once tried to do a split and ended up with an injury.