Best balance between Line of Credit and Home Loan

I am trying to figure out my options and their implications:

Currently
Existing LoC: $275K
Borrowing capacity (same bank): $635K (if I wanted to borrow from the same bank but I won't do that)
I am building my first IP in Brisbane so the loan will be $350K. My bank is not aware about this loan. I am planning to build my portfolio, most likely as a combination of CF+ IPs and some for CG (no more H&L packages :eek:). The serviceability level is okay.

Option 1
Top up the LoC to the maximum ($675K)
This reduces my borrowing capacity (HL limit) to $243K

Option 2
Top up the LoC to $400K for example
This will reduce my borrowing capacity (HL limit) from the existing level of $635K, but not as much as in Option 1 ($243K)

On one hand it seems like a good idea to have access to $600K+ any time. However I am concerned that I may not be able to get a loan for other IPs. :confused:

What are the implications from taking option 1, 2 or leaving things as they are? What would you do and what strategy would you apply ? Would greatly appreciate your opinion
 
If you had a $600k LOC you could possibly pay 'cash' for the next property. Generally it would be better to borrow 80% (at least) for each property purchase because it can be difficult to mortgage a property later and get a loan on it. Many banks are worried about givng access to large sums of borrowed cash.

LOC should be used for deposits and costs. Because they are generally repayable on demand you would want to convert the LOC to a term loan as soon as you use it. Make sure you spilt it - e.g $600,000 LOC and you use $400,000 for IP 1, in this case you would convert $400,000 to an IO loan and $200,000 keep as a LOC.

LOC generally also have a higher interest rate.

LOC are also generally assessed harder for serviceability.e.g one lender treats them as a 20 year PI loan when assessing serviceability.
 
this bit got me confused ?

ta
r

My LoC is secured against my PPoR. I'd like to keep my investment loans separate from my 'home finance' bank. I am just about to get a loan for my first IP from a different lender, therefore my 'main' bank is not aware about it. I guess, the borrowing capacity may change once the first IP loan has been issued? Wasn't sure if this piece of information would be a 'have to know' / 'good to know' / 'who cares' type. :)

My borrowing capacity has been calculated by my 'home finance' bank. I am wondering if I had a $600K+ LoC from them would I be able to continue borrowing from other financial institutions up to 80% LVR for the properties that cost $300-600K.
 
Thank you Terry_w

If you had a $600k LOC you could possibly pay 'cash' for the next property.
This sounds like an opportunity to get a bargain or two, but I'm a bit wary about the downsides.

Generally it would be better to borrow 80% (at least) for each property purchase because it can be difficult to mortgage a property later and get a loan on it. Many banks are worried about givng access to large sums of borrowed cash.
How soon should I borrow 80% after the purchase if I chose to pay 'cash' for IP? How risky is this in comparison to taking 20-25% out of LOC and borrowing 80%?

LOC should be used for deposits and costs. Because they are generally repayable on demand you would want to convert the LOC to a term loan as soon as you use it. Make sure you spilt it - e.g $600,000 LOC and you use $400,000 for IP 1, in this case you would convert $400,000 to an IO loan and $200,000 keep as a LOC.

A silly question please. Is term loan the same product as standard property mortgage loans? Also, when I convert $400K in the example above to an IO loan - from a different bank - the LOC balance will go back to $600K, won't it?
 
My LoC is secured against my PPoR. I'd like to keep my investment loans separate from my 'home finance' bank. I am just about to get a loan for my first IP from a different lender, therefore my 'main' bank is not aware about it. I guess, the borrowing capacity may change once the first IP loan has been issued? Wasn't sure if this piece of information would be a 'have to know' / 'good to know' / 'who cares' type. :)

My borrowing capacity has been calculated by my 'home finance' bank. I am wondering if I had a $600K+ LoC from them would I be able to continue borrowing from other financial institutions up to 80% LVR for the properties that cost $300-600K.

A LOC is a loan product, the same way a variable or fixed loan is a loan product. It's just got a couple of different features. The limit must be disclosed as part of any finance application.

When you calculate your equity position, you also need to include the limit of any loans, which includes any LOC accounts.
 
How soon should I borrow 80% after the purchase if I chose to pay 'cash' for IP? How risky is this in comparison to taking 20-25% out of LOC and borrowing 80%?

You could do it the day after settlement. But the risks are that:
1. Bank will be reluctant to give you 'cash out' of 80% of limit in this climate.
2. Valuation could come in lower - unlikely. But a chance it could come in higher as the valuer and bank are not limited to purchase price.
 
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