Top up or new loan with splits to release equity?

Discussion in 'Loans & Mortgage Brokers' started by josh_c, 13th Sep, 2017.

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  1. josh_c

    josh_c New Member

    Joined:
    12th Sep, 2017
    Posts:
    1
    Location:
    Hong Kong
    Hi everyone,

    I’m new here so please be gentle.

    After searching and reading some threads I’ve learned a whole lot so thank you all! Nonetheless I wanted to ask about my situation to see if I’m on the right track…

    My wife and I have an IP paying IO and have a 100% offset account. We borrowed 90% plus LMI. We currently live overseas but will be moving back to Australia in the next 6 months. We’ve only had the place 6 months but it’s grown nicely and our LVR is now less than 80%. To help with costs of moving back home, setting ourselves up and upcoming changes to cashflow (hopefully starting a family), I had the idea of releasing whatever equity we can to use as a cash buffer. Especially while we’re both still working, albeit overseas, and hopefully will pass serviceability.

    So my questions are:
    1. Is this a good idea?
    2. I originally thought I would just apply to ‘top up’ the loan but after reading these forums it seems it would be better to get a new separate loan for the equity release? Especially if we didn’t end up using the cash and wanted to use it for investment purposes in the future or if we did use it for personal spending we would want to keep it separate from our current investment loan, right? We don’t want to risk mixing. Is this correct?
    3. If we did get this separate loan what’s the best structure? IO with an offset same as existing investment loan? Could we keep the funds in the loan untouched until we needed them or would they deposit into the offset (we’re with CBA atm) (I guess the outcome would be the same interest wise)?
    4. What does the application process look like? Bank valuation of the IP to see how much equity we can release and then apply for the new loan? Or is it considered a complete refinance? If so, would it be better to refinance with another bank and get 2 splits to achieve this? CBA IO investment loan interest rates have been going up and up lately, perhaps we could refinance somewhere cheaper? Or will we struggle to refinance somewhere else as we’re overseas earning foreign income?
    5. If we were to refinance could we borrow 90% of the IP (and cop LMI again) and split it up into several loans as @Terry_w suggests in Tax Tip 13: Simple Loan Structuring Strategy to make it easier for us to buy the next one(s) in the future? Would this be a good idea or am I getting carried away?
    6. Any other ideas, suggestions, things to think about?
    Thanks guys!
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,571
    Location:
    Gold Coast (Australia Wide)
    I dont think a new loan is actually possible at 90 % IO.

    Id consider a separate equity loan to 88 ++lmi at PI if you qualify

    Please see specifc advice

    ta
    rolf
     
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  3. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

    Joined:
    31st May, 2016
    Posts:
    2,738
    Location:
    Australia
    Hi Josh

    Lending servicing has tightened more over the last 6 months or so, and throw in foreign income in the mix, it does become more challenging.

    When was this loan approved? Most lenders are capping LVR for IPs to 90% including LMI, and have been for a while.

    Yes better to do a separate top up loan - as you want to segregate these funds - depending on what you end up using the funds for.

    CBA have been Ok with their rates, and in my experience have been a decent lender when it comes to expats. You will find all lenders have risen their Interest Only rates - so it may not be worthwhile moving lenders just for the rate. If rate is of concern, have you considered fixing part of the loan at P&I rates?

    You will loose the benefit of the LMI paid, if you refinance (whether internally with CBA or externally) at 80%. On the flip side, CBA will make the entire loan to be P&I, if LVR is over 80%.

    Lastly, you cannot just look at 1 IP in isolation to your future plans.
     
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