Cash flow loans

Jodie701

Jodie701

I've been seeing "Positive Cash Flow loans" popping up around the place, where the first few years can turn a -ve geared property into a +ve cash flow one by deferring interest (capitalising part of the loan).
Has anyone gone with this type of loan before and have any advice on it?
I saw one that looks riddled with fees, are they all like that?

We are planning to capitalise all the interest on our IP anyway (will need to a private tax ruling first) to help pay off our home loan. Was just wondering which way would be better.
 
Search the od posts here, there are quite a few on it. I would set up my own LOC to capitalise interest rather than pay the lender a premium to do it for me....
 
Before you commit to this type of loan find out if it is still available. Many of those who were offering these have lost their funding in the last 4 weeks.

So before you commit the time to researching the strategy make sure the product is still about.

Obviously you can do the same ie capitalise interest if you have the funds available or a line of credit against another property ( as tobe has suggested) - all without the high fees.

Jane
 
iblue said:
that's a quick collapse!!
Click to expand...

Not really the funds have been drying up in Australia since late last year. The first major lender to leave the market was Macquarie Bank, many others have followed. A similar situation to what is happening in the UK.

Jane
 
Hi Jodie701,

I haven't used such a strategy myself, however be cautious in the current credit environment that whilst your cashflow may be enhanced, your LVR should not be too extreme or after the duration of interest capitalisation you may find you have negative equity if capital growth is negligible or slow over the medium term. In the US they term this being "upside down" viz, owing more than the property is worth.

You may be accruing debt at a faster rate than your IP is growing. This of course depends on your initial IP equity at the start of this type of loan.

As tobe suggested a LOC would be less costly and also give you more control.
 
here is some goss, its not good .




Trail Commissions

Unfortunately due to the level of arrears and losses in Seiza’s publicly rated Trust, Seiza is unable to make trail payments on those loans funded through the Trust.

Seiza has not received payment from the Trust for the past 12 months but we have made payments to the originators. Over the 12 months Seiza has made approximately $1.25million of trail payments. Due to the current market conditions, Seiza is unable to continue funding these payments without receiving payment from the Trust.

When the arrears and losses improve, payments will be made from the Trust to Seiza. At this point Seiza will reinstate ongoing trail payments to the Originators.
 
I also agree that a LOC is the way to go.

The cashflow loans have a max LVR 0f 80%, so why not borrow 95% (two loans, 1 80% for the house, the other 15% for your cashflow), then use the extra 15% loan to pay for any short falls.

This effectively achieves the same thing, except...
1. You wont have the high fees that the cashflow loans charge
2. You'll be able to get a more competitive interest rate
3. You wont be locked in for several years
4. You can refinance at any time with any bank you choose
 
Code:
tubs said:
I also agree that a LOC is the way to go.

The cashflow loans have a max LVR 0f 80%, so why not borrow 95% (two loans, 1 80% for the house, the other 15% for your cashflow), then use the extra 15% loan to pay for any short falls.

This effectively achieves the same thing, except...
1. You wont have the high fees that the cashflow loans charge
2. You'll be able to get a more competitive interest rate
3. You wont be locked in for several years
4. You can refinance at any time with any bank you choose
Click to expand...
Code:

I would think that borrowing up to 95% on a property in the current financial climate would require further security like another IP to xcoll:(

It seems we have others on SS that are starting to think that getting credit going forward is going to be a problem.... Careful you will be branded a D&G:p
 
nonrecourse said:
Code:
Code:



It seems we have others on SS that are starting to think that getting credit going forward is going to be a problem.... Careful you will be branded a D&G:p
Click to expand...


What? Moi.......a European fashion house :eek:

Merely sitting on my hands, with a few re-fi's coming up in the ensuing years, and having invested and survived the early 90's, I'm keeping existing LVR's nice and low.

I am an optimist....I expect the best and prepare for the worst. ;)

Then again, I am always lurking the rough for some diamonds. Now where did I put my cheque book? :rolleyes:
 
No Dooming and Glooming here!

Bring it on!

You can still get 95%. Or you could take some equity from another property that brings you up to 80%. The point is that you can manufacture the same thing as a cashflow loan without the restrictions that a cashflow brings.
 
Hiya

95 to 97 IO for purchases is still a snack if all else fits

Did a staff members deal this week for a PPOR, no gen savings, 100 % lend, IO, 8.88 rate

ta
rolf
 
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