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PPOR loan structure question

Discussion in 'Property Finance' started by elwil, 29th Sep, 2016.

  1. elwil

    elwil New Member

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    29th Sep, 2016
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    Location:
    Melbourne
    Hi all,

    I have a quick question regarding my current loan structure for my PPOR. I purchased my first home two years ago ($460,000), with the aim of turning it into an IP in the future. The current loan structure is a little complicated. Loan application was through one bank however this specific bank had a deal where it set the larger loan with a different bank (to utilise 100% offset and no LMI):
    • Loan 1: $368,000, IO with 100% offset (bank A)
    • Loan 2: $21,000 P+I (paid down from $46,000) (bank B)

    Loan 2 has a much higher rate than loan 1. Now it has come time to refinance for a better deal. The two options are:
    1. Pay off the remaining $21,000 now, keep loan 1 with bank A with the same structure (IO with 100% offset)
    2. Merge the two loans together and move everything across to bank B, also IO with 100% offset
    The rates for both options are the same. I'm leaning towards option 2 as we get to keep the $21,000 and park it in the offset, however I've been told this will reduce any equity we may have as it increases the loan amount.

    Am I overthinking this? What is the best structure with the ultimate aim of turning this property into an IP? Any advice is much appreciated.
     
  2. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    If your aim is to turn it into an IP, retaining as much debt as you can would be ideal.

    Have you had the property valued? What is it worth? If it's a house in Melbourne, you probably have loads of equity available and won't need to pay down any of the loan.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Or you could just refi the whole lot across to bank C, and make it one big loan again.

    You'd want to keep as much debt on this one as possible, so avoid paying anything down if you can.

    that said, I'm assuming LVR is going to be pretty high, as those deals that your bank has done is usually to make a very high LVR deal - the second loan is effectively a personal loan.

    Your best bet will be to chat to a broker, get some vals done to see how low you can get the LVR and go from there.
     
  4. Simon Moore

    Simon Moore Mortgage Broker - Melbourne Business Member

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    You would probably want to refinance both the loans to the same institution, depending on what the loan with bank B was use for you may want to leave them as separate loan splits to avoid a mixed purpose loan when you turn it into an IP.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Merg into one loan.
     
  6. elwil

    elwil New Member

    Joined:
    29th Sep, 2016
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    Location:
    Melbourne
    Hi all,

    Thanks for the useful reply's. The loan was initially a high LVR at 90%. We are currently awaiting on the valuation at the moment. In regards to avoiding a mixed purpose loan, will this be an issue if we merge everything into one, with regards to tax deductions in the future? Loan 2 was effectively a personal loan (10% of purchase price) with bank B, for which we are paying P+I., although it was still used to purchase the property.

    Thanks
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Location:
    Perth WA
    If both loan purposes were to buy the same property it's fine to merge them both.
     
    Simon Moore likes this.