Need advice- loan structure and strategy

Hi All,


This is my current situation:


Home loan PPOR, P&I (value $500k), rate 3.86%. Balance remaining = $10k (original loan was $292K)


Splits from PPOR

• 33k (car loan, tax deductible as I get a car allowance for work; P&I, 3.86%)
• 42k (security for IP 1; P&I, 4.34%)
• 95K (security for IP 2; P&I, 4.34%)

IP 1- IO, 4.84%. $400k loan (value = $430k, purchase price was $450k, settled May 2017). No LMI; recently refinanced and bank evaluated property to be worth $500k) Currently rented at $400/week. Offset attached.


IP 2 - IO, 4.79%. $317k loan (value = $396k, same as purchase price, settled June 2018). Currently rented at $370/week. Offset attached


All loans are from the same lender- CBA.


What I would like to know is have I structured my loans properly? I would like to improve borrowing capacity and serviceability and continue to grow my portfolio.


Secondly, now that my PPOR is almost paid off, should I close off this loan? The title would still remain with CBA as I still have splits attached.


Thirdly should I switch my IP’s to P&I? Keep additional payments in offset.

Thanks

 

Structuring is an art (and a bit of a science too I guess) so there is no right ways to structure something as it will depend on your circumstances.


Do you have any redraw ability on the main residence loan?

- Debt shuffling could save you money

IP loan rates are a bit high.

Why IO on the investments?

Why 2 offset accounts?

Is the security for each loan just 1 property?

 

Hi Shazz,

My first concern is that if you've dealt directly with CBA, there's a very high chance your loans are all cross secured - if this is the case, this is the first thing to remedy and can be done at the same time as any other refinancing/restructuring.

In terms of closing your PPOR loan, the answer is 'maybe' - is the remaining loan small because the loan term is almost done, or because you've paid heaps off? If you've paid heaps off, it might be good to keep it open as the rates will be lower than you'll ever get on an INV loan, and you can recycle the facility to buy another IP or into shares, for eg.

It would be worth having a chat with a good broker, as there are quirks and having a good idea about your future plans and some clarification around your existing lending will help formulate a strategy to move forward.

 

My concern is that you assume dealing direct is a concern, and looking on the surface the loans look like they're structured really well.

Having splits against the PPOR for each loan with each having different purpose
Separate loans for each of the properties.

I would be EXTREMELY surprised if someone went to the effort of doing individual loans and then crossed them.
Not saying hasn't been done before, but just not logical.


As for the OP what has your banker suggested? By the looks of it they're doing a reasonable job so far.
Paying off the PPOR completely - do you have redraw? Do you have plans to use this?
Switching existing IHL to P&I if the PPOR is paid off, makes sense now... but what are your future plans? Any chance that you will upgrade your PPOR?
Paying off your PPOR so no redraw is available will improve your borrowing capacity, so would switching to P&I on your IHLs - but doesn't need to be done now to work out what your capacity/affordability

 

And another question - are all properties owned by the same entity in the same percentages?

 

You know that the majority are not you, Brady It's always the first thing I check when clients have been dealing direct.

Re the splits, it does look good on the face of it, but I've seen this and it's still crossed - the person doing the IP purchase just crosses the whole lot.

 

I assure you there are some others just like there are some brokers I trust...

I would be surprised if it was different people completing the splits and the IP purchases.

 

As brokers it is our duty to bag bankers. But there are some good ones out there.
The problem with brokers is they are often self employed, so no one to reign them in, whereas bankers have to abide by the policies of their employers, so there tend to be many more bad brokers out there than bankers.

 

There's plenty of brokers that will cross you to high heaven also - I'm just as quick to judge them

 

I regularly check CBA’s offers online.

I recently managed to switch a Variable 50k split to a 2 year fixed at 3.99% online myself in minutes, no paperwork. Saved about 0.60% from memory.

Do you currently pay for the wealth package?
I believe this also reduces your rates and gives you access to free credit cards/offset accounts.

 

Hi Rolf,
No LMI on the loans- when I purchased them I used a 20% cash deposit- refinanced this now so the debt is 100% on the IPs. Cash is back in my PPOR. Used splits to secure the IPs. No cross collateralisation.
33yrs, female, single. no kids (don’t anticipate this changing anytime soon, but will adapt goals if needed)

Goals- don’t want to worry about working full time for the next 30 years. Want to be semi retired by 45-50.
Passive income of ~ 50k (I think that’s what I’ll need) at 60. Super contributions up to 15% at the moment. Started a share portfolio of ETFs and LICs to generate more income for the future (regular purchases every 6 months ~10k/ year for now). Current salary with car allowance ($140k), + 12% super + bonuses ($10-20k/year)

 

Hi Terry,

Yes, I have the ability to redraw, but I haven’t needed to. I’m just splitting the loan so they aren’t mixed.

I just set up the IO in the first instance so I can quickly pay down the PPOR. I was always going to switch them to P&I very soon.

2 offsets because they are 2 separate IPs. Use offsets for collecting rent for the respective properties, and use this for any maintenance and bills for the 2 properties.

There is 2 loans for securing the respective IPs. I just wanted them separate, in case I sell one etc. And can work out interest for the respective properties for tax.

 

Thanks for your suggestions Jess. I will speak to a mortgage broker. No cross collateralisation. This was non-negotiable when I set up the loan. I had to tell the CBA manager exactly what I wanted as he tried to cross collateralise.

 

Thank you for your feedback Brady. I restructured the loans up myself based on suggestions here on PC. Originally, my PPOR was mixed with unnecessary debt. I wasn’t maximising interest payments on tax for the IPs. I had a young CBA loan officer who wasn’t knowledgeable and didn’t and set up my loans properly.
But I went with CBA as they had all my financials on file and at the time, the few mortgage brokers I was dealing with at the time, kept offering me products I didn’t want (eg fixed loans, cross collateralision). CBA was the less painful option. Plus, less fees as I already had a PPOR loan with them.

I do have redraw. But I was just going to close out the loan and the use an equity loan if I need to (same as how I split the loan). Is this ok? I would like to continue growing my portfolio, just don’t know my borrowing capacity as the online calculators don’t work on my situation.

I may upgrade to another PPOR, but only if I get married or have kids. At the moment, single 33 year old female. If I do upgrade to another PPOR, I would sell my current home- not convert to IP.

 

Yes, all owned by me (100%). Single 33 year old female, no kids.

 

Yes, I pay for the wealth package. Apparently I am on one of the highest discounts available (1.4%).
I am not a fan of fixed loans, so that’s why my rates are always higher. Plus I have been told that you can only ask for a rate review once a year. Now that I have almost paid off PPOR, I am willing to take IP Loans to other lenders.

 

what do you mean by this? Did you increase the loan size at all?

 

IP1- purchase price- 450k. Original loan- 360k.
Used 90k cash deposit from PPOR. Held this structure for 12 months before realising error, loan balance - 352k

Restructured loan- new loan 400k
42k split from PPOR.

So yes, increased original loan amount

 

what does "Used 90k cash deposit from PPOR" mean? Did you redraw or borrow or cash from an offset account?