Loan Structuring - Accessing Equity

Hello all,

Long time lurker, first time poster.

I'm wanting to buy a new PPOR and turn my current PPOR into an IP. I have 200k cash available. I also have approximately 100k usable equity in my current ppor.

I'm trying to plan the best way to structure my new loan.

I'm going to speak with my broker soon and just want to make sure I haven't made some sort of rookie error in my planning.

The new PPOR will have its own new loan secured by the new PPOR only.The current PPOR (being turned into an IP) will have two loans. The original loan and a new loan created by accessing equity - both secured by the current PPOR.

From what i understand, I don't want to cross collateralise.

Current PPOR (now IP):
Loan 1 - IO (changed from P&I)
Loan 2 - IO (equity release)

New PPOR:
Loan 3 - P&I

Thanks for taking the time to read my post. Any tips on my proposed structuring before talking to my broker would be greatly appreciated!

 

Yes correct....loan 2 against old PPOR for the equity release could be P&I once it's being used since (I assume) will be used for the new PPOR.

 

That makes sense. Thanks Tony

 

When you say there is 100k equity, what is the value of the current ppor and the amount of the current loan?

 

Yes just a new split.

Keep in mind interest won't be deductible

 

Current value is 708k
Current loan amount is 464k

 

Thanks Terry, just to clarify, you mean interest won't be deductible on loan 2 (equity release loan)?

 

I haven't really considered it as an option at this stage. Planning on seeing what the broker suggests and going from there

 

Yes

 

Worth asking the qn: what does keeping my existing PPOR vs selling it look like.
If selling you may end up with lower non deductible debt as the future ppor debt will be lower.
Can then reinvest extra funds/equity in the new ppor to a more investment purpose asset too - and have the INv property funded at 105% (interest cost on full amount fully deductible).

Often ends up more optimal/efficient set up, especially if your current PPOR is at a low lvr.

 

It's definitely worth considering. Thanks for your perspective Redom

 

FYI in our discussions one push back is often ‘I want to grow the portfolio’ = good goal. Often it’s achievable but with this process: sell existing PPOR, buy new PPOR min non deductible debt + deductible equity drawn, buy new IP approach.

Get to a similar end outcome with better debt allocation and often a much better investment allocation (my home I live in is great for PPOR but imo is a pretty rubbish IP on wealth building metrics).

Separately altogether, sometimes even makes sense for a portfolio investor to sell down one IP that’s grown a lot, pay out the ppor down, and then rebuy another IP (perhaps security subbing if reaccessing debt is an issue).

Point of the above examples is sometimes debt structures/tax consequences are bigger deciding factors than assets itself. A bit of ‘nimbleness’ is often an investors best friend.