Advice on loan structure moving forward

[astigmatised]

Hi all, long time lurker, first time poster. I've certainly learned a lot from the many contributors, so big thanks to all.

I have a PPOR, and 2 IPs which I set up as follows based on advice from a recommended property accountant:

Loan 1:
- CBA I/O - secured against PPoR (all funds to be used for IP related expenses). I had fully paid off this loan, prior to taking out the I/O loan.

Loan 2:
Homeside I/O - secured against IP1 (75% LVR, 25% deposit came from CBA loan)

Loan 3:
Homeside I/O - secured against IP2 (75% LVR, 25% deposit came from CBA loan)

I also use a Homeside offset account where I park all of my savings (I'd originally been using my CBA MISA offset for this, but my accountant said this was mixing the purpose and advised that I clean up my loans and place all of my savings in the Homeside offset and use CBA purely for investment purposes. I'm not really sure I understood this as the way I saw it, the purpose was always to fund investment)

A few questions:
1, Can anybody explain why the accountant recommended I use an offset attached to one of my IP loans, instead of the CBA loan, despite the fact that I would be using the CBA loan for investment purposes anyway?

2. I want to get onto IP3 soon. If I revalued IP2 / IP3 and achieved an uplift, can I park the funds into the CBA loan while I wait to make a purchase?

3. I met with an investment lender recently and he questioned why I had my structure set up as such, and why I didn't have all my loans with one lender. I explained that based on everything I had read, I wanted to avoid xcoll. He basically said that was outdated thinking and that things had changed. I used the example of the all monies clause and he said if a bank wanted to claim security, they could take you to court anyway. He has all his loans with one lender and is one of the top performing mortgage brokers, is well respected and certainly wouldn't have got to where he is without knowing his stuff. I'm hesitant about his advice, given it goes against everything I have been told.

4. If I have all loans with one lender, but each secured by only one property, would that still be considered xcoll? For example, if I replaced Homeside as my lender on IP1 and IP2 with CBA but limited the security on each loan to the one property?

Thanks in advance

 

[alexlee]

1, Can anybody explain why the accountant recommended I use an offset attached to one of my IP loans, instead of the CBA loan, despite the fact that I would be using the CBA loan for investment purposes anyway?

My guess is that CBA may not offer a true offset account? In theory, interest on all three loans are fully deductible so there isn't a difference.

3. I met with an investment lender recently and he questioned why I had my structure set up as such, and why I didn't have all my loans with one lender. I explained that based on everything I had read, I wanted to avoid xcoll. He basically said that was outdated thinking and that things had changed. I used the example of the all monies clause and he said if a bank wanted to claim security, they could take you to court anyway. He has all his loans with one lender and is one of the top performing mortgage brokers, is well respected and certainly wouldn't have got to where he is without knowing his stuff. I'm hesitant about his advice, given it goes against everything I have been told.

In practice, it's not just about avoiding xcoll. It's because each lender has different lending criteria, so to maximise lending, you go for the toughest lenders first then work your way down. It's more likely you'll be able to borrow more with multiple lenders.

The investment lender (whatever that means) is right in that if a bank called in a loan and the property secured against the loan wasn't enough to cover the, they will come after your other assets whoever they're mortgaged with. However, if one bank holds all the mortgages, it's a lot easier for them to go after everything.

 

[The Y-man]

3. I met with an investment lender recently and he questioned why I had my structure set up as such, and why I didn't have all my loans with one lender. I explained that based on everything I had read, I wanted to avoid xcoll. He basically said that was outdated thinking and that things had changed.

Try selling one of your properties when they are crossed-coll'd!

The Y-man

 

[Rolf Latham]

3. I met with an investment lender recently and he questioned why I had my structure set up as such, and why I didn't have all my loans with one lender. I explained that based on everything I had read, I wanted to avoid xcoll. He basically said that was outdated thinking and that things had changed. I used the example of the all monies clause and he said if a bank wanted to claim security, they could take you to court anyway. He has all his loans with one lender and is one of the top performing mortgage brokers, is well respected and certainly wouldn't have got to where he is without knowing his stuff. I'm hesitant about his advice, given it goes against everything I have been told.

run, dont walk.

Xcoll aside, the issues of concentration risk of having a good size portfolio with one lender is plainly daft.

I know plenty will argue otherwise, but if one weighs logic, common sense and more importantly intuition ( aka gut feel for blokes: ) ) why would you do anything a lender suggests to be a good thing ?


ta
rolf

 

[astigmatised]

Thanks for the replies. The guy is a broker, not working for a specific bank. What he is suggesting makes me think "walk away".

In the eyes of fellow SS'ers, have I got the right structure?

 

[The Y-man]

4. If I have all loans with one lender, but each secured by only one property, would that still be considered xcoll?

No, we have had muliple IP's with one lender and not x-coll'ed.

However there is a ceiling at which they stop lending you money (where you go from being good customer to risky customer).

The Y-man

 

[Terry_w]

Hi all, long time lurker, first time poster. I've certainly learned a lot from the many contributors, so big thanks to all.

I have a PPOR, and 2 IPs which I set up as follows based on advice from a recommended property accountant:

Loan 1:
- CBA I/O - secured against PPoR (all funds to be used for IP related expenses). I had fully paid off this loan, prior to taking out the I/O loan.

Loan 2:
Homeside I/O - secured against IP1 (75% LVR, 25% deposit came from CBA loan)

Loan 3:
Homeside I/O - secured against IP2 (75% LVR, 25% deposit came from CBA loan)

I also use a Homeside offset account where I park all of my savings (I'd originally been using my CBA MISA offset for this, but my accountant said this was mixing the purpose and advised that I clean up my loans and place all of my savings in the Homeside offset and use CBA purely for investment purposes. I'm not really sure I understood this as the way I saw it, the purpose was always to fund investment)

A few questions:
1, Can anybody explain why the accountant recommended I use an offset attached to one of my IP loans, instead of the CBA loan, despite the fact that I would be using the CBA loan for investment purposes anyway?

2. I want to get onto IP3 soon. If I revalued IP2 / IP3 and achieved an uplift, can I park the funds into the CBA loan while I wait to make a purchase?

3. I met with an investment lender recently and he questioned why I had my structure set up as such, and why I didn't have all my loans with one lender. I explained that based on everything I had read, I wanted to avoid xcoll. He basically said that was outdated thinking and that things had changed. I used the example of the all monies clause and he said if a bank wanted to claim security, they could take you to court anyway. He has all his loans with one lender and is one of the top performing mortgage brokers, is well respected and certainly wouldn't have got to where he is without knowing his stuff. I'm hesitant about his advice, given it goes against everything I have been told.

4. If I have all loans with one lender, but each secured by only one property, would that still be considered xcoll? For example, if I replaced Homeside as my lender on IP1 and IP2 with CBA but limited the security on each loan to the one property?

Thanks in advance

Hi.

1. 75% is unusual, why didn't you go for 80%? (not that it matters). Accountant is probably confused about mixing borrowed and non borrowed money

2. Don't talk about parking money - paying into a loan is a repayment. So what you would be doing is borrowing money and repaying a loan. When you take out the money from CBA to use again it is new borrowings and as long as you use it for investments the interest should be deductible. I would prefer the use of a LOC as this allows money to be borrowed without any corresponding paying down loans.

You could also park the money in a new savings account, one that has no cash in it. This is parking because you are no paying into a loan. Once you find a property you can use the cash and the interest should be deductible if you can trace the funds invested to the borrowings, without any mixing or additions along the way.

3. This guy is an idiot and doesn't know the first thing about loans.

See my post here
http://somersoft.com/forums/showthread.php?p=1115834#post1115834

This was a real life example too btw (except about the treading in dogs poo, all of this happened to someone I know).

4. No

 

[astigmatised]

2. Don't talk about parking money - paying into a loan is a repayment. So what you would be doing is borrowing money and repaying a loan. When you take out the money from CBA to use again it is new borrowings and as long as you use it for investments the interest should be deductible. I would prefer the use of a LOC as this allows money to be borrowed without any corresponding paying down loans.

You could also park the money in a new savings account, one that has no cash in it. This is parking because you are no paying into a loan. Once you find a property you can use the cash and the interest should be deductible if you can trace the funds invested to the borrowings, without any mixing or additions along the way.

Sorry I meant putting the money in the offset attached to the CBA I/O loan. Does that make a difference?

3. This guy is an idiot and doesn't know the first thing about loans.

He has been ranked top mortgage broker etc breaking $500m FUM, and won numerous other industry accolades. Spent 20 years at a Big 4 and set up their investment lending division before branching out on his own.

Good thing I checked with SS.

Thanks all.

 

[Terry_w]

Sorry I meant putting the money in the offset attached to the CBA I/O loan. Does that make a difference?



He has been ranked top mortgage broker etc breaking $500m FUM, and won numerous other industry accolades. Spent 20 years at a Big 4 and set up their investment lending division before branching out on his own.

Good thing I checked with SS.

Thanks all.

Huge difference between paying into a loan and an offset - this is good that you used the offset.

Just because some has experience and is good at sales doesn't necessarily mean they are smart!

 

[Aaron_C]

Oh well. If he wants to x-coll then let him. I would like to see that $500m FUM all stitched with the same bank!