Refinancing IP & Loan for PPOR - Strategy

Discussion in 'Loans & Mortgage Brokers' started by aquilia, 26th May, 2020.

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  1. aquilia

    aquilia Member

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    Hi all,

    Just after considerations from wiser heads here about what you would do in my situation or if there are things I am missing. I'll be seeking advice from a broker as well.

    Currrently:
    • Have an IP - P&I loan with NAB with loan balance $418k. Variable at 3.49% with 100% offset. $118k sitting in offset at present.
    • Would like to purchase a PPOR over coming months (up to $650k)
    • HSBC recommended by an acquaintance so considering refinancing investment loan with HSBC and taking out a loan for my PPOR purchase with them too.
    • Banker at HSBC recommended accounts with redraw rather than offset but I prefer to have an offset at least for my investment loan to retain the tax deductibility of the interest. Interest rate would be 3.13% for this investment loan (vs 2.98% with a redraw facility instead and no offset account and associated monthly fee).
    • IP valued in February 2020 at $540k by NAB. Valuation by HSBC this month at $510k.
    • Investment loan at 80% LVR means there will be a $10k shortfall that will have to come from my savings.
    • Refinancing understandably not ideal with a lower valuation
    • Would this be a sensible strategy: Refinance investment loan across to HSBC with an offset account paying P&I. When I take out a loan for a PPOR with same lender, direct all savings into an offset account associated with this home loan (intention is to live for several years but potentially may turn into another IP down the track) and change the investment loan into interest-only?
    Are there any factors that I might be missing in this scenario?

    Thanks so much for reading down to this point. Any input would be greatly appreciated :)
     
    Lindsay_W likes this.
  2. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Please see a broker from the forum for this - there are potential tax things here that they won’t advice on, but they’ll recognise and structure your loans in a way that will mean you don’t throw away a a heap of deductions.

    Also worth ordering vals with other lenders - you may not have to chip in cash.

    I can see you’re rate focused which is fine, but you’ll seriously benefit from professional advice - and the banker at HSBC doesn’t count. ;)
     
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  3. Lindsay_W

    Lindsay_W Well-Known Member

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    I agree with what Jess has said above.
    Why would you want to refinance the Investment loan to HSBC? You said yourself you would have to put in $10K from your own savings to make it work, this is not a good start, spending $10K to save a few percentage points on rate = going backwards. Secondly you mention P&I on the investment loan, why not IO straight away? IF you go P&I then want to switch to IO down the track it's a full credit assessment and you may not qualify for it. So the take away is, speak to a good broker asap.
     
    aquilia likes this.
  4. aquilia

    aquilia Member

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    Thanks Jess!

    Appreciate the advice and will be getting professional advice for sure. Haha agree that HSBC banker isn't professional advice. Just the conversation around the redraw/offset account made me think I need another viewpoint.
     
    Jess Peletier likes this.
  5. aquilia

    aquilia Member

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    Thanks Lindsay_W, really appreciate your input and I'll be speaking to a broker for sure.

    Yep, agree on chipping in $10k being illogical now. I didn't realise that it would take a full credit assessment to switch fro P&I to IO down the track so thanks for the heads up.
     
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  6. Terry_w

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

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    You can debt recycle the $10k so it will be deducitble interest going forward. But you haven't factored in the LMI. It will be over 80% LVR overall so you want to try to shift, legitimately, as much of the LMI as you can over to the investment loan so you can deduct or deduct it in part at least.

    Or that may be unnecessary. Just leave the IP loan as is and get the main residence loan with another lender. Even at the high val you would be at 77% LVR so you must have paid LMI with NAB originally? If might be best to stay if you have as any future increase over 80% would get a credit for LMI already paid.

    There would be no reason to have an offset account on an investment property while you have non-deductible debt. Also I cannot see you ever using redraw on an investment loan unless you are ahead in payments - which shouldn't happen.
     
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  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Take care with advice from mono policy/product lenders, brokers and lenders can only relate in general terms in regards to tax issues, and the use or not of redraw.

    As Jess has said, clearly the first step is a valuer shop

    ta

    rolf
     
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  8. aquilia

    aquilia Member

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    Thanks Terry_w, appreciate your insight!

    Yes, I did pay LMI with NAB originally. I think your suggestion to perhaps stay put with NAB for the IP loan might be the way to go, especially with Lindsay_W highlighting that chipping in $10k of my own savings with refinancing being a step backwards.

    Also agree on having a redraw for the IP loan. I was considering having an offset for this loan as being useful while I haven't yet taken out a loan for a PPOR but concur that there would no reason for this when I have non-deductible debt.
     
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  9. aquilia

    aquilia Member

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    Thanks Rolf!

    Yes, it's becoming clearer and clearer to me the limitations of their perspective so it's a valuable point to have highlighted to me. I'll definitely look for other valuations and reach out to a broker.
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Cools .

    HSBC is a good lender, but is still limited by X

    which may not be optimum for your family

    ta

    rolf