cash bonds

From: Gail H


Has anyone had experience with cash bonds as a way of increasing capacity to borrow? Steve Navra has kindly forwarded me some info, but I was wondering if anyone had experience with them.

And a question for Rixter if he's reading - how do you fund properties 100%? You mentioned in one of your posts that you can use your home equity as security for the deposits (to avoid the damage to your DSR that a line of credit does), but I just don't understand how. Are you talking piggybacked mortgages with multiple lenders? Any help or clues would be much appreciated.

As always, thanks so much everyone for your generous help and advice.

Gail
(who is desperately trying to get a particular deal over the line at the moment, so is posting more to this site than any sane person should)
 
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Seeking Rixter

Reply: 1
From: Steve Navra


Mate your e-mail address keeps rejecting, so I can't send you all that you are requesting!
Contact me: 0419 220907

Regards,
Steve
 
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Reply: 2
From: Rolf Latham


Hi Gail

If set up properly, it does work. Seems a little weird at first to borrow for increased service capacity, but like many things if you dig deeper you will see that this has been around for years and used succesfully

ta

Rolf
 
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Reply: 2.1
From: Rixter ®


Hi Gail,

Heres an example of borrowing 100% of the IP purchase price using your home equity as a Security Deposit.

Lets say for ease of calculation you have $100k equity in your home, and you are purchasing an IP at $100k.

Normally the lenders will require you to take out Loan Mortgage Insurance (LMI) if you borrow greater than 80% of the purchase value of the IP. This 80% is known as your Loan to Value Ratio (LVR).

So the way lenders allow you to borrow 100% without paying LMI is by them holding 20% of the IP purchase price against your home equity as secuity for the deposit.

In the example above they loan you $100k to purchase IP and secure the other 20% or $20k of your homes equity without altering your home loan ammount or repayments.

Then as your IP increases above the market purchase price the need for the lender to hold the $20k equity as security drops away. From the example your IP would need to have an increase in value to $125k.

That is 80% (IP loan)= $100k, plus 20% (cap growth)= $25k .Once this growth has been achieved the IP then becomes what is known as "Self Secured" because of the 80%/20% LVR.

Hope I havent confused you.

Happy Investing,
Rixter :)
 
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Reply: 2.1.1
From: Gail H


Thanks everyone.

Rixter, I take it that what you suggest only works if you use the same lender for your home and your IP, as most lenders are only happy with being first mortgagee, aren't they?

Gail
 
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Reply: 2.1.2
From: Duncan M


This message is in MIME format. Since your mail reader does not understand
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A few points:

Once you've cross-collateralised your own home with your IP's good luck
getting the bank to unravel it.. much easier to move institution.. The IP
doesnt automatically become self-secured, banks are very reticent to give up
security.

I have no problems with Cross-Collateralisation in the early days of getting
an IP portfolio established, what ever makes it easy for the bank to lend
you more and more, just do it.. We spent 3 yrs acquiring 8
cross-collateralised properties and have only just recently unravelled it
all into individual loans with another lender. Dont lose sleep over the fact
that your own home is security for your investment portfolio.. because at
the end of the day if you default on your repayments for your IP's, your
home is still at risk, albeit via the sheriff's office and a lengthy legal
process.


Regards,


Duncan.



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<TITLE>RE: cash bonds</TITLE>



A few points:


Once you've cross-collateralised your own home with =your IP's good luck getting the bank to unravel it.. much easier to =move institution.. The IP doesnt automatically become self-secured, =banks are very reticent to give up security.

I have no problems with Cross-Collateralisation in =the early days of getting an IP portfolio established, what ever makes =it easy for the bank to lend you more and more, just do it.. We spent 3 =yrs acquiring 8 cross-collateralised properties and have only just =recently unravelled it all into individual loans with another lender. =Dont lose sleep over the fact that your own home is security for your =investment portfolio.. because at the end of the day if you default on =your repayments for your IP's, your home is still at risk, albeit via =the sheriff's office and a lengthy legal process.


Regards,



Duncan.





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