Refinancing equity

[Boyd 2]

Previously if I wanted to utilise my equity to help finance the next property I've just borrowed against an existing property (cross securitised). I've stayed away from lines of credit as a personal preference. There's a refinancing method I've heard mentioned several times which I assume is a line of credit in action but I'm after some clarification. It's also mentioned in the latest API magazine investor profile story starting on page 42. On page 45 in the paragraph titled "Money Matters" Amanda says..."when the properties go up in value, in most cases I'll just refinance it up to 80% again and use some of that money to buy more property." Is this a line of credit loan facility being utilised or am I reading it wrong?

[Twitch]

Yes probably, but it doesn't have to be (eg variable with 100% offset). Best to talk to a mortgage broker about your options.

BTW, why don't you like LOCs?

[Qlds007]

Boyd

Certainly could not recommend you cross collaterise securities if you can help it especially as you start to build your portfolio.

To structure correctly you could use a combination of both offset and LOC and split the loans upto 80% LVR.

Keep the IP separate. Look to extend the LOC with the increasing valuation of the property and utilise these additional funds for more and more deposits.

Feel free to email if you want some further specifics.

[dtraeger2k]

Hi,

I have read the said article as well. My interpretation of the way it's worded sounds like it is all on one loan (cross coll). This has worked extremely well for a couple of people I know.

I wont be doing any of that myself tho, in oder to keep my options open when I get a little further down the track.

Do you care to comment on your personal preference to shy away from LOC's ?

[Boyd 2]

Thanks for the replies. I guess the only reason I've stayed away from LOC loans is that I'm a fairly traditional person who likes things easy and simple. I'm still learning how to use the options on the mobile phone and as for programming the vcr... she does all that. Also, like everyone else, when LOC'S were a new concept in the marketplace there numerous stories of people getting themselves into trouble with them. Like everybody into property I would prefer that each property is a stand alone but I have found that cross securitisation is an easy and simple to understand method to achieve that. I've heard of people 'refinancing' their equity and am just trying to become a bit better educated. Cross securitisation is one method of refinancing equity but there is the thought that you are handing what you own back to the bank.

[Qlds007]

Hi Boyd

Yes Cross coll your loan may seem like a fairly easy and simple thing to understand but remember it works soley in the Bank's favour.

As you build up your portfolio you may find severe restictions placed upon your borrowing ability or indeed the cost of your borrowing increase with added mortgage insurance expense.

To have each loan sitting separately is again a simple concept and will work in your favour as time passes.

[Rolf Latham]

Hiya Richard

Simple it may be, but many bankies dont understand the concept of sole securities, and some lenders pretty much wont allow it.

ta

rolf

[Medine]

Hi Boyd 2,

If I were you I'd have another look at LOCs from an investor's point of view.

The reports on the current affair programs usually use the example of home owners who thought the LOCs were the panacea of lending, designed to reduce their loan, whilst allowing them to spend more than they earned. They found out that that wasn't the case an blamed the banks :confused:

They're actually very useful to investor, particularly when avoiding the dreaded cross collateralisation. So worth having another look.

Cheers, Medine

[gooram]

All,

I too have two 2 IPs x-coll'ed with my PPOR, mainly due to being a novice. There is enough equity in the PPOR to pay the 20% deposits on both, (the first one probably no-need now as it's increased in value enough), but of course the bank never mentioned this as an option.
However, apart from the implications of x-coll'ed assets when things go wrong, is there a financial benefit to paying the 20% deposits from equity?
I assume since the borrowed deposits are used for investment purposes, it becomes tax deductible, so from a financial point of view (net cost), I wouldn't be better or worse off?

Thanks
Gooram

[Rolf Latham]

Hi Goo

I believe there is always financial benefit in things that give you more flexibility.

The ability to pick and choose lenders for their niche will almost always pay better divs than trying to lump everything with the one lender.

ta
rolf

[yadreamin]

Boyd

Certainly could not recommend you cross collaterise securities if you can help it especially as you start to build your portfolio.

To structure correctly you could use a combination of both offset and LOC and split the loans upto 80% LVR.

Keep the IP separate. Look to extend the LOC with the increasing valuation of the property and utilise these additional funds for more and more deposits.

Feel free to email if you want some further specifics.

When one wants to extend the LOC with the increased value of the poperty do you have to have a bank val done or is recent sales data enough to satisfy the lender?
cheers yadreamin

[Rolf Latham]

Hiya

The Nab will generally be a ok with sales evidence and written rea estimates since they often do their own vals.

Almost all other lenders will want a val done, some will work with apm vals if the lvr is ok, and the property is around the median for the burb

ta

rolf

[Simon]

Valuation is required. Should you have a Pro Pack then the lender will pick up the tab.

Some lenders do internal "Drive By" vals for free and will sharpen their pencils to win business - this can very veru handy sometimes ;)

Cheers,

[gooram]

Hi Goo

I believe there is always financial benefit in things that give you more flexibility.

The ability to pick and choose lenders for their niche will almost always pay better divs than trying to lump everything with the one lender.

ta
rolf

Can't argue with that Rolf.

So being x-coll'ed, whilst not a good idea in any case, will not affect your borrowing power if you choose to stay with the same bank?

However another bank wouldn't touch me with a ten foot pole as all my assets belong to my current lender?

[Rolf Latham]

Hi Goo

i didnt communicate clear enuff there.

Yes, xcoll can affect your serviceability, because the existing bank will load your repayment at a higher rate or some sort of stress test margin, whereas many lenders will look at the actual repayment.

New bank wont care about your loans being with other lender as long as you satisfy new bank service rules

ta

rolf

[geoffw]

Gooram

I was with the same lender for quite a while, and they did a very good job by me. It was x-colled, but that was the only way I could get my flock of bats, so that was OK.

But when I hit their limit, it proved extremely difficult to move away. It took well over 12 months to split things off. The flock has increased from $490K to $800K, and I can't do anything with that extra equity still (changed circumstances and reduced servicibility doesn't help)

[gooram]

Gooram

I was with the same lender for quite a while, and they did a very good job by me. It was x-colled, but that was the only way I could get my flock of bats, so that was OK.

But when I hit their limit, it proved extremely difficult to move away. It took well over 12 months to split things off. The flock has increased from $490K to $800K, and I can't do anything with that extra equity still (changed circumstances and reduced servicibility doesn't help)

Geoff,

So how did you get around it? What was involved in removing the cross-coll?
Assuming you were at an LVR for each IP.

I've only just opened up a dialog with my bank manager to determine how I can do the same. As yet I've not got no answer.

[Jamie]

I've only just opened up a dialog with my bank manager to determine how I can do the same. As yet I've not got no answer.

Gooram,

Have you considered using a mortgage broker? Your bank manager can only show you one set of loan products - the ones he/she is selling. Most good brokers can source you up to 30 different lenders and around 300 different loans, usually at no cost to you.

All the brokers who have responded in this thread (Rolf, Simon, Medine and Richard) are great at what they do - perhaps its time to look outside your comfort zone and give your business to a lender that wants it, rather than one who makes YOU work for it.

Jamie.

[geoffw]

Gooram

I removed the x-coll. With the help of a broker- Mr Ed from the forum. It was a big job, but he did very well.

[redwing]

There is a good series of articles about X-Ing and the benefits in undoing this..

Check this out at www.loansapproved.com.au

REDWING

[gooram]

Gooram,

Have you considered using a mortgage broker? Your bank manager can only show you one set of loan products - the ones he/she is selling. Most good brokers can source you up to 30 different lenders and around 300 different loans, usually at no cost to you.

All the brokers who have responded in this thread (Rolf, Simon, Medine and Richard) are great at what they do - perhaps its time to look outside your comfort zone and give your business to a lender that wants it, rather than one who makes YOU work for it.

Jamie.

Are any of these based in Perth? If not do you know of any reputable ones in Perth?

[gooram]

Gooram

I removed the x-coll. With the help of a broker- Mr Ed from the forum. It was a big job, but he did very well.

Can you explain why it was so difficult and what your broker had to go through to get it done?
Any fees involved?

Thanks
Gooram

[Rolf Latham]

If its like the ones we have had to do, its sort of like drilling teeth with a inadequate injection :)

ta

rolf

[Boyd 2]

I would have thought that if all the properties involved had increased therefore the overall lvr (x-coll loan) was ok then you could split loans without drama as each new individual loan would now have an ok lvr.

[Rolf Latham]

Hiya

Yes it is that simple, but no its often not that easy for a number of reasons incl bank policy, major challenges in calculatings stamps etc.

Simply avoid in the first place.

ta

rolf

[gooram]

Even if they hadn't, you could use PPoR equity to pay down the IP loans to 80% LVR...

This is what I was thinking, but x-coll being a good thing for the bank, I assume they'll make me jump through hoops to undo it.

Unless of course, you're as tight with the bank manager as I am... or is he like that with all his customers ;)