capitalising interest with loc NAB doesnt know what im talking about??

[im sparticus]

Hello today I tried to apply for a line of credit through nab (nab home equity line of credit) to use to capitalise the interest on my home loan, however the loan guy could not understand me and said he had never heard of such a thing and that they couldnt do it and had nothing else that could either.

Just wondering for those out there that have actually done this what financial intitutions are facilitating this sort of thing and what exactly do you have to tell the loan guy so he understands you and can help you??

 

[alexlee]

Just tell him you need the LOC to buy shares.

 

[Peter_Tersteeg]

There isn't any lender who actually gets this strategy at as policy for that bank as a whole. You may get very lucky and find an individual or two in a branch who understand it, but keep in mind most of these people are not property investors on any level.

Capitalising interest via a LOC is not really a strategy that lenders would be inclined to condone as for most people it would not be a responsible use of money. I have been able to convey debt recycling methods to different lenders as part of an overall financial strategy, but this is signed off in a financial planning capacity, not just a lending capacity.

Most banks (including NAB) have products that can make this work with varying degrees of success (the best would be AMP or Colonial Geared Investments). It's mostly just understanding how the products fit with strategy.

 

[cmason]

Hello today I tried to apply for a line of credit through nab (nab home equity line of credit) to use to capitalise the interest on my home loan, however the loan guy could not understand me and said he had never heard of such a thing and that they couldnt do it and had nothing else that could either.

Just wondering for those out there that have actually done this what financial intitutions are facilitating this sort of thing and what exactly do you have to tell the loan guy so he understands you and can help you??

I am doing this at the moment with NAB although as you experienced took a while to explain to them what I wanted and what capitalising interest means

My Line of Credit is a part of a Flexiplus Mortgage Choice Package but that shouldn't make a difference. I reckon you try a different loan person(did you call help desk or go to a branch) as they do allow capitalising interest on an LOC

 

[Rolf Latham]

ooooh u bad boy

capitalising is a no no in many lenders eyes in todays world

ta
rolf

 

[wobbycarly]

ooooh u bad boy

capitalising is a no no in many lenders eyes in todays world

ta
rolf

Really? Would one need to be in a fairly strong equity position to manage it? I was hoping to do something like this in the next year or two.

 

[john]

Hope you will excuse my ignorance. I understand capitalising interest but what is rhe relationship with a LOC and a PPOR loan??
many thanks

 

[cmason]

ooooh u bad boy

capitalising is a no no in many lenders eyes in todays world

ta
rolf

For me I'm not doing to the extreme of which I have seen.

The LOC is paying for the interest of the 80% loan and the 25%(deposit plus costs) loan, then the rent gets credited into the LOC therefore the LOC is covering the shortfall. Then the interest on the LOC is being capitalised pretty much interest on shortfall plus any bills/maintainence

None of these loans are in any way connected to my PPoR loan even with a different lender

 

[mary&mat]

Hi I'm spartacus,

Agree with alexlee. Just tell them you want it for improvements/renos to the property. They don't need to know what you're going to do with it.

That's all I told the bank & it's fine.

As long as you manage it properly & it's part of your overall strategy, there should be no worries

 

[Joe D]

There is nothing wrong with capitalising interest in an LOC, but there is no reason to tell a bank that you are doing this.

As long as you have sufficient reserve and manage it properly you should be okay.

Also, even though you may have a large buffer on your LOC limit, the bank will still expect you to make payments into this LOC
(it says so in your loan documentation)

If no payments are made into the particular LOC account within a 12 month time frame this can trigger an audit on the account. Best to be aware of this and avoid it.

 

[Rob G.]

"Capitalising interest" is unofficial accounting jargon.

When talking to financial and legal people the term is "compound interest".

Cheers,

Rob

 

[Token Funder]

Those paying debt with debt may find the world an interesting place as positive credit reporting rolls out.

 

[Marty McDonald]

True token but where there is a will there is a way. Instead of a loc you could achieve the same by fully drawing an interest only loan with the excess funds deposited into an offset account which pays all the interest and costs.

 

[im sparticus]

thanks for the replys guys I will just tell them i want the money for something else. I initially applied for the "home equity line of credit" online and started having the trouble when the loan guy rang me back for approval over the phone basically from what he was saying this particular product from nab the bank writes you out checks when you need the money and the check can only be made out to specific people ie builders etc. does this sound right?? I always thaught you got funds from the loc with a credit card and i could swipe the card and spend the money as i pleased or just charged things to this account??
which loc's and with whom should i apply will work so i can just get nab to stop charging my interest from my savings account and instead charge the loc (is this right or should i just cancel the direct debt and pay my interest manually through the loc) and can spend the money as i please without having to beg for and have them authorise a check ?

 

[Rolf Latham]

Those paying debt with debt may find the world an interesting place as positive credit reporting rolls out.

positive

depends on what side of the fence u sit on

Plenty of clients with SAD credit still getting cards, personal loans, car loans and interest frees...................with 4 x + margins of any mortgage backed product

ta

rolf

 

[simo74]

thanks for the replys guys I will just tell them i want the money for something else. I initially applied for the "home equity line of credit" online and started having the trouble when the loan guy rang me back for approval over the phone basically from what he was saying this particular product from nab the bank writes you out checks when you need the money and the check can only be made out to specific people ie builders etc. does this sound right?? I always thaught you got funds from the loc with a credit card and i could swipe the card and spend the money as i pleased or just charged things to this account??
which loc's and with whom should i apply will work so i can just get nab to stop charging my interest from my savings account and instead charge the loc (is this right or should i just cancel the direct debt and pay my interest manually through the loc) and can spend the money as i please without having to beg for and have them authorise a check ?

I would maybe have a look at the NAB Portfolio Facility or a FlexiPlus Mortgage. Both are LOC and funds can be used for any Legal Purpose. I like the National Portfolio Facility as you can have Multiple Sub Accounts (Up to 18) to access the Portfolio Limit from and you can also have multiple Offsets.
Forget about the Home Equity Product. There are too many restrictions.

 

[Rolf Latham]

Both are LOC and funds can be used for any Legal Purpose.

until u tell em you want to cap interest or build a house or do renos...............all legal but gee what hoops

ta
rolf

 

[mary&mat]

If no payments are made into the particular LOC account within a 12 month time frame this can trigger an audit on the account. Best to be aware of this and avoid it.

I would've thought the bank looked drawing down your LOC at this as a good thing for them as you owe them more money & they have more of a 'hold' over your properties.

Has anyone had an audit on their LOC as Joe D mentions?

I've had one for about 5 yrs & over the last 2 yrs have not made any payments back into the LOC. The bank rang late last year to query if we wanted to extend our LOC...of course I said 'yes' .

 

[simo74]

I would've thought the bank looked drawing down your LOC at this as a good thing for them as you owe them more money & they have more of a 'hold' over your properties.

Has anyone had an audit on their LOC as Joe D mentions?

I've had one for about 5 yrs & over the last 2 yrs have not made any payments back into the LOC. The bank rang late last year to query if we wanted to extend our LOC...of course I said 'yes' .

LOC's with most banks are reviewed annually (95% not by a human ). As long as you stay within the limit and do not become irregular you will not have a problem. Failure to make regular payments to a LOC will not cause a audit. You are not required to make payments. Only if you exceed your limit or the limit is cancelled.

 

[mary&mat]

Thanks simo74!