Loan Tip: Borrowing more When Buying Main Residence

Discussion in 'Property Finance' started by Terry_w, 20th Dec, 2018.

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  1. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    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
     
    Last edited: 20th Dec, 2018
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  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    A not uncommon strategy

    in the old days....................

    Today, I am supposed to ask such a client to go to retail branch, since its no longer ethical or sensible to borrow 400 k, when only needing 100..................

    Retaining a buffer for future risk management or investment seems to regarded by lenders, regulators and consumer groups to be in resulting in Poor Consumer Outcomes.

    Just this week I had a lender accuse a mentee of unconcionsable conduct and doing such structuring purely for extra commission, and they dissallowed same even with a clear explanation direct from the borrower.

    Sedgewick CITF mess really :(

    ta

    rolf
     
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  3. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    wow
     
  4. FXD

    FXD Well-Known Member

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    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!!!
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    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.
     
  6. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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

    FXD Well-Known Member

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    Does each split attract fees & charges ongoingly?

    Thanks,
    FXD
     
  8. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    depends on the bank and products.
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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

    datto Well-Known Member

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