I was wondering if someone could please explain to me the pros and cons of using an Annuity to address serviceability issues for a Loan Application rather than simply the combination of a LOC/Lo-Doc Loan IF the lending product is a Lo-Doc Loan anyway?
Ok. We know 'serviceability' can often be a problem once you start collecting a few properties even though you may have good equity.
One commonly discussed method on the Forum is to create an income stream from your equity by purchasing an annuity for say 5 years. You then have an income stream you can show the lender to increase your borrowing capacity. You can apply for a Lo-Doc Loan and make a truthful declaration that you have
access to $xxxx/month to service your loan.
So, if for example, you have purchased a $150K Annuity, you can show you have access to about an extra $33K/year 'income'.
There are respectable firms that will offer this whole service with variations. If there is a possible 'down side' to this process, it would appear it's that your $150K could be tied up for 5 years unless you pay the various exit fees which may run to 3-5%(say around $6000) and depending on what arrangement you have
with the lender, you may have to let them know immediately that you have cashed in even part of your annuity(additional income source). I would imagine the Lender would then want to totally reaccess whether, in THEIR opinion, you can still hold the investment property.
The above process of accessing the equity to address serviceability obviously works but I was wondering if there were any other options available to make it more 'flexible'......... and since my knowledge of Lo-Doc requirements is VERY LO, I was wondering what would stop you simply doing the
following?
You have a serviceability problem but equity. I guess if it was a No-Docs type product you were going for you could almost 'make up' income sources, but lets assume you want to make a totally honest declaration and also control your risk(as I would!).
As in the above example, you take out a LOC for $150K and then apply for a Lo-Doc Loan with the quite truthful statement that you have access to an additional $30K/year(which you will, but YOU would choose to draw it if and when required). You do
have access to the money, so that should also satisfy any 'risk' issues for a period of up to five years. The LOC should be seen as tax deductible but you wouldn't be paying interest on the full $150K from the beginning(indeed you may never need to draw the full $150K and would be paying interest on a lesser amount). Also if you do want to access the LOC for any reason, you wouldn't be up for any exit fees. The other main difference is that
you wouldn't actually be purchasing an Annuity.
As I said, I'm really not sure the requirements of a Lo-Doc loan so I don't know if both of the above processes WOULD achieve the same outcome
with a lender but hopefully someone can enlighten me.
Thanks in advance guys.
Ok. We know 'serviceability' can often be a problem once you start collecting a few properties even though you may have good equity.
One commonly discussed method on the Forum is to create an income stream from your equity by purchasing an annuity for say 5 years. You then have an income stream you can show the lender to increase your borrowing capacity. You can apply for a Lo-Doc Loan and make a truthful declaration that you have
access to $xxxx/month to service your loan.
So, if for example, you have purchased a $150K Annuity, you can show you have access to about an extra $33K/year 'income'.
There are respectable firms that will offer this whole service with variations. If there is a possible 'down side' to this process, it would appear it's that your $150K could be tied up for 5 years unless you pay the various exit fees which may run to 3-5%(say around $6000) and depending on what arrangement you have
with the lender, you may have to let them know immediately that you have cashed in even part of your annuity(additional income source). I would imagine the Lender would then want to totally reaccess whether, in THEIR opinion, you can still hold the investment property.
The above process of accessing the equity to address serviceability obviously works but I was wondering if there were any other options available to make it more 'flexible'......... and since my knowledge of Lo-Doc requirements is VERY LO, I was wondering what would stop you simply doing the
following?
You have a serviceability problem but equity. I guess if it was a No-Docs type product you were going for you could almost 'make up' income sources, but lets assume you want to make a totally honest declaration and also control your risk(as I would!).
As in the above example, you take out a LOC for $150K and then apply for a Lo-Doc Loan with the quite truthful statement that you have access to an additional $30K/year(which you will, but YOU would choose to draw it if and when required). You do
have access to the money, so that should also satisfy any 'risk' issues for a period of up to five years. The LOC should be seen as tax deductible but you wouldn't be paying interest on the full $150K from the beginning(indeed you may never need to draw the full $150K and would be paying interest on a lesser amount). Also if you do want to access the LOC for any reason, you wouldn't be up for any exit fees. The other main difference is that
you wouldn't actually be purchasing an Annuity.
As I said, I'm really not sure the requirements of a Lo-Doc loan so I don't know if both of the above processes WOULD achieve the same outcome
with a lender but hopefully someone can enlighten me.
Thanks in advance guys.
