Looking to Refinance NAB LOC

Discussion in 'Loans & Mortgage Brokers' started by AlphaOB1, 9th Jul, 2019.

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  1. AlphaOB1

    AlphaOB1 Member

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    Hi all,

    I’m a new member with a somewhat complex financial position so I will initially just provide the main details below.

    My investment company (which trades in Australian equities) has an existing interest only NAB LOC with a credit limit of approx $1.5m which was set up in 2010 and is currently not drawn. The NAB LOC is called a Portfolio Facility and charges a variable interest rate of 5.57%. The LOC is secured by a residential property owned by my parents who are also directors of my investment company although I own 100% of the company.

    I would like to refinance this LOC as I am looking to finally purchase an investment property but in my personal name (not in my company name) and noticed that there are lower variable rates in the market place such as State Custodian offering less than 4% for a LOC. However the NAB LOC is more flexible in that it has the option of a 100% offset account, is IO (with no maximum period before P&I sets in) and has the ability to have sub accounts (for example, with the $1.5m credit limit I can set up an account with $750,000 under my company and another account with the other $750,000 under my personal name even though the original loan application was only in my company name). My research has not been able to find a comparable LOC offering and I suspect that this NAB LOC is not common these days.

    So I have the following questions;

    1. Does anyone know of a similar LOC offering to the NAB Portfolio Facility that permits sub accounts but at a better variable rate as most investment loans are below 4%?

    2. If the answer is no to the first question, then if I was to refinance my LOC with another institution (such as State Custodians), can I refinance the LOC such that the LOC is in my personal name with my company and parents as guarantors (income and/or security wise) and secured by my parent’s residential property? Or would I have to first close the NAB LOC and then make a new LOC application with another lender under my personal name using the above guarantors and residential property to support the LOC? I assume the latter.

    3. Alternatively, would it be best to just close the NAB LOC and apply for a normal investment home loan (either IO or P&I) using my company and parents again as guarantors and their residential property as security?

    4. Finally should I engage the services of a mortgage broker and if so, can anyone recommend one especially in Sydney? My only concern with using a MB is that they may not be able to obtain the best rates if the panel of lenders they have access to is limited.

    I initially set up the NAB LOC without any specific use of the funds and more so for opportunities if they suddenly arose. I would now like to purchase an investment property but am hoping to find a lender with a rate below 4%.

    Thanks in advance to anyone with suggestions.
     
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    The issue you have with the interest rate is due to the fact that you want a LOC but you dont necessary need a LOC. You can ascertain a cheaper rate and achieve the same thing using a term with a linked offset. You just need to ensure that the lenders allow for limit rebalances without the need for credit assessment.

    You will need to specific advice around the structure though given that there appears to be multiple entities involved.

    Unless your income is ridiculously strong - you need to also factor in future borrowing capacity so how you structure the loans today may have an impact on how much you can borrow tomorrow.

    I wouldn't be looking at lenders like State Custodian for what you want to do. You need a lender that has a flexible product and lending policy.
     
  3. Terry_w

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

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    2. Consider the legal and tax effects of this. This wouldn't be a refinance, but you borrowing to pay out a company loan - you cannot claim the interest. if it is not drawn then there is no interest, but going forward interest would not be deductible.

    have you had legal advice on this?
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I FEEL rate should be the last consideration if looking to encumber parents house

    Structure to reduce their risk ASAP should be YOUR priority surely ?

    ta

    rolf
     
  5. AlphaOB1

    AlphaOB1 Member

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    Hi Terry,

    No I have not had legal advice but I intend to just close the LOC and apply for a home loan in my personal name to simplify everything. I have already been given the forms to discharge the LOC and have been given forms for an Approval in Principle Application by NAB (as I need to know my borrowing capacity first). I just have to decide whether to stay with NAB or get a mortgage broker to help me. Can a MB assist me in determining my borrowing capacity or is a MB only useful once I know exactly how much I need to borrow?
     
  6. Terry_w

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

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    But doesn't that loan relate to the purchase of the shares?
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Suggest that a good broker can provide direction and strategy as well as product fulfillment

    ta

    rolf
     
  8. AlphaOB1

    AlphaOB1 Member

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    No the loan does not relate to the purchase of shares.
    About $330,000 relates to the purchase of equities in my company name while the balance of about $1.15m relates to the purchase of a couple of investment properties in my personal name. However, as both loan balances are fully offset by funds in both of the linked offset accounts I can simply pay off both loans and close the LOC. Obviously I could use the funds in my offset account to purchase an investment property but that would mean I would start paying 5.57% interest on the loan balance. That is why I am thinking of closing the LOC and applying for an investment home loan which has a lower interest rate.
     
  9. Terry_w

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

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    Is the loan in the company name?
     
  10. Terry_w

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

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    'equities' are shares!
     
  11. AlphaOB1

    AlphaOB1 Member

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    The LOC was opened in my company name using my parent's residential property as security and myself (and I think my parents) as guarantors as we are all Directors of my company. However, two sub accounts were set up, one in my company name and one in my personal name and then the funds drawn down as per my previous post.
    PS. To prevent confusion please ignore my previous post when I said the loan does not relate to the purchase of shares (approx $330,000 was used to purchase equities).
     
  12. AlphaOB1

    AlphaOB1 Member

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    Yes, sorry I accidentally pressed the reply button without double checking as the shares were purchased back in 2009/10.
     
  13. Terry_w

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

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    I am just worried that you might be triggering a potential deemed dividend and won't be able to claim an interest deduction going forward if you refinance a company loan into your personal name + even if you don't.
     
  14. AlphaOB1

    AlphaOB1 Member

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    I never considered that. Hence why I will probably just reduce the loan balance on both sub accounts to zero and close the LOC. Alternatively I guess I could reduce the loan balance in both accounts to zero and just keep the LOC open before applying for a home loan in my personal name.
     
  15. Terry_w

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

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    you need some serious advice I think.
     
  16. AlphaOB1

    AlphaOB1 Member

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    Thanks Terry. After much thought I will definitely take up your suggestion.
     
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  17. AJP

    AJP Well-Known Member

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    1) Short answer, no
    2) I suspect your issue here would be the loan purpose itself and proving the direct benefit that your parents/company
    would receive for guaranteeing the loan. My gut feeling on this would be that this wouldn't be possible.
    3) Same issue with point 2. Would need some more understanding on the purpose of the loan here.

    Assuming a LVR <80%, your rate is quite high at the moment and i know high 4s are a possibility should you call and negotiate your rates.

    Q:
    - You mentioned that you had a sub account under your personal name - are you a co-borrower to the loan in your own individual right as well?
    - Are you manged by Business Bank or Small Business?