Swap the investment loan security

Hi
I have an IP variable loan with CBA and think about fix it for 3 years with lower interest rate. However, I am planning to sell the IP and buy another IP in 12-24 months. Does CBA allows me to swap the the existing IP with another IP? How complicated the application be?

 

It might, depending on the circumstances. Might be difficult to pull off if you are wanting to use the new property as security.

 

We did a transfer but the price from the sale house was paying for the new house so no other loan.

Depends how much the loan is. Are you borrowing for the new ip as well as wanting to transfer the existing loan? Is the total of the 3 under 80%?

 

Is it possible to swap securities WITHOUT a loan/serviceability assessment being done if your 'new' loan is less than or equal to the 'old loan'?

 

Yes

 

OK thanks. I'm going to have to look into this. Only problem is the bulk of my loans are with NAB and the rest scattered with diff lenders. From what I've read, NAB is one of the worst for this sort of thing.

Does the rental return of the new security need to be the same (or more) as the old?

 

I don't know the NAB policy off the top of my head but they tend to be difficult to deal with.

But you are not changing the borrowings, just the security for the borrowings so there should be no reassessment of income, just of LVR.

Think of how this could be used as a retirement strategy to draw down on capital growth without decreasing the number of properties you own.

 

Hi @Terry_w - would it look something like property A worth $2M with $750k loan.
Don’t qualify for new lending but could potentially port the loan to a new security?
Ie Sell $2m propertyA (Net of costs), pay CGT (if applicable), agents commission etc and downsize into $1M property B.
Port the $750k loan to the new propertyB and keep the net sale proceeds (approx $1M) between the $2M propA and $1M propB with the $750k loan now remaining against the $1M property.
End result is the same number of properties exposed to the market (although noting a lower gross $ market exposure).
Would that be close?

 

Yes that could potentially work.
Then you have $1mil less the transaction costs and the same amount of properties.

 

Hi all, just want to resume this post with a variation please. As a retirement strategy, does it work if you want to sell your PPOR and move in to your IP, and security swap the PPOR's mortgage onto the IP and discharge the IP's old mortgage? In that case:
- sell PPOR, keep PPOR mortgage open
- use PPOR sale funds to pay off IP loan for discharge
- secure the PPOR mortgage against the IP
- funds remaining from PPOR sale will go into offset

However when I apply the hypothetical numbers, downsizing to an existing IP doesn't seem to work that well financially vs. downsizing to a new property. For example:
- $2m PPOR value, $900k mortgage. $1.2m IP, $800k mortgage
- Sell PPOR ending up with $1.1m sale proceeds (less costs)
- Use proceeds to pay off $800k IP mortgage, with $300k left over
- Apply $900k PPOR mortgage to IP, with $300k sitting in the mortgage offset, ending up with $600k still outstanding

However I've still ended up with $600k of loans as opposed to applying the $1.1 sale proceeds to finding a new downsize property that has a value of 80%LVR of $900k loan (i.e. $1.125m), pay the $225k (20% deposit) out of your own pocket, and apply the remaining $875k in funds to the $900k loan. This seems a lot more better off because you only have $175k loan outstanding, and $875k to fund your expenses.

So does that mean this strategy doesn't work for an existing IP? Or did I do something wrong with my calculations? Appreciate your views thanks.

 

You are confusing loans with mortgages. You will need to discharge any mortgage on a property being sold, but you can swap the security for the loan before the sale, if you have equity, and then keep the loan open. Then you need to loan recycle if you want to invest further otherwise you won't be able to claim the interest.

 

Loan Tip: What is Loan Recycling?
Loan Tip: What is Loan Recycling?

Tax tip 342: Tax Issues with Loan Recycling
Tax tip 342: Tax Issues with Loan Recycling

 

Thanks Terry, just substitute "mortgage" for "loan" in my post, I meant the money borrowed I read your helpful tips but it still doesn't resolve the problem that you need to pay off the loan for Property 2 to fully discharge the mortgage before you substitute it with Loan 1, which would eat into the fund proceeds from Property 1 sale.

So for moving into Property 2, it seems better to just use the existing Loan 2, and put sale proceeds from Property 1 into the Loan 2's offset - the risk/problem is if Loan 2 is from a non-bank and the interest rate is higher.

 

Did we speak about this last week?

 

Your figures are wrong I think

Go through it and write the step by step outline down and I will check it for you

 

Yes, and I'm kind of regretting not getting my loan from you!

 

Can you refinance from the lP lender to the PPOR lender for the IP loan and keep the structure as is ? This way you can park any sale proceeds from the PPOR into the offset account of the 800K loan against the 1.2M IP ?

From my own experience offset accounts from the big 4 are the best & the so called ''offset'' account from 2nd tier lender are a nightmare ...bcos they act as redraw and not like the normal offset account at the major banks.

 

Thanks but not really, because I've reached the limit for banks and I'm hesitant to use a non-bank's "offset" - I totally know what you mean, because they are not ADI, and they don't have separate client accounts if you put funds into them. They do have their place in the market though.