Confused re loan set up for first IP

[Digger253]

Hi all,

My wife and I are at the point of obtaining finance to purchase our first IP and hopefully second and third not to far down the track. I am a bit confused by some recent advice I was given and I am interested to get the opinions of more experienced investors or one of the mortgage brokers on this site.

Our PPoR is valued at $570,000 and we only owe $20,000 on the mortgage, so our equity is very good. We have no other debt and receive $3800 a f/n in wages.

Several years ago (when our equity was okay but not as good as it is now) my wife and I were about to buy an IP and were granted an Equity line of credit of $190,000 through our bank. The mortgage broker who organised this for us said that we would use the money from this equity line of credit to pay the deposit on the IP

He advised us that we would then obtain a loan from another lender to purchase the IP. This loan would be sourced from a totally different lender to whom we have out PPoR and equity line of credit.

Long story short, we never did buy our first IP. The equity line of credit for the full amount of $190,000 is still sitting in our bank account, basically ready to use.

My confusion comes from recent advice that we were given from a mortgage broker who suggested that we obtain a loan from St George for the purchase of the IP and that we would also move our existing home loan over to St George as well. In short, both the mortgage for PPoR and future first IP would be with St George Bank.

Does this advice sound correct? Is that the correct strategy for obtaining the finance for our first IP. My quite limited understanding of IP loans was that it was better to have them with separate lenders.

Could I just leave my current home loan as it is and go to another lender for the IP loan. Is it a matter of course that they would want to have the mortgage on my PPoR as well.

Any comment or advice would be greatly appreciated. Thanks very much,

Digger 253

 

[Aaron_C]

Having it with the same lender is OK as long as it's not cross collateralised. My initial confusion though is why St George?

 

[Shahin_Afarin]

My confusion comes from recent advice that we were given from a mortgage broker who suggested that we obtain a loan from St George for the purchase of the IP and that we would also move our existing home loan over to St George as well. In short, both the mortgage for PPoR and future first IP would be with St George Bank.

Does this advice sound correct? Is that the correct strategy for obtaining the finance for our first IP. My quite limited understanding of IP loans was that it was better to have them with separate lenders.

Could I just leave my current home loan as it is and go to another lender for the IP loan. Is it a matter of course that they would want to have the mortgage on my PPoR as well.

Any comment or advice would be greatly appreciated. Thanks very much,

Digger 253

Why has he suggested that you move your current loan across to st george? What are you achieving by doing this? Did you pay LMI against your current home? No problems with having everything with the one lender and it may work from a pricing perspective but the important thing is will that lender will suitable for what you want to do in the future?

I don't see a reason to go to st george unless its a specific policy thing.

 

[Digger253]

Having it with the same lender is OK as long as it's not cross collateralised. My initial confusion though is why St George?

Hi Aaron,

Thanks for your swift reply. I thought that if the same lender had my PPoR and the IP loan then I would be cross collateralised. I've read a few IP books lately but obviously I'm not understanding that issue properly. Is there a simple way of understanding cross collateralising?

I don't understand why if I only owe $20,000 on my PPoR I don't just leave that loan with my current lender. Rates permitting, I might as well just get my IP loan with my current lender.

I don't really know why he chose St George, just that he liked the rates and the loan. Ironically I just I noticed the comments on another thread tonight bagging St George Bank so I might steer clear of them.

Again, Thanks.

 

[Peter_Tersteeg]

Unless there's a very specific reason to move to St George, I don't think you have to. You've got your LOC set up so you're ready to go with a deposit. Your income looks like it's enough to get a good start with an IP or two.

Unfortunately the motivation behind this advice is often so the person giving the advice gets paid more.

 

[Digger253]

Why has he suggested that you move your current loan across to st george? What are you achieving by doing this? Did you pay LMI against your current home? No problems with having everything with the one lender and it may work from a pricing perspective but the important thing is will that lender will suitable for what you want to do in the future?

I don't see a reason to go to st george unless its a specific policy thing.

Thanks for your reply Shahin,

He just said that St George would want to take over my current home mortgage as I was borrowing the whole amount for the IP.
No, I didn't pay LMI against my current home.
He just told me that he liked the rates at St George and did a lot of business with them.

 

[Digger253]

Unless there's a very specific reason to move to St George, I don't think you have to. You've got your LOC set up so you're ready to go with a deposit. Your income looks like it's enough to get a good start with an IP or two.

Unfortunately the motivation behind this advice is often so the person giving the advice gets paid more.

Thanks Peter,

Because I have the $190,000 LOC already in place I was confused by the advice given as it was very different to the advice I was given several years ago. I just thought that I would use a portion of that LOC for deposit on the IP and the Broker would find me a different lender for the IP loan.

 

[Shahin_Afarin]

whats the rate with stg? 5.34%? You can get a much better product with say macquarie at 5.19%.

At the end of the day though its not about the rate as much as it is about aligning your needs with that lender's policy.

The big question is what is your longer term strategy and does the lender fit well with that strategy...

 

[Rolf Latham]

He just said that St George would want to take over my current home mortgage as I was borrowing the whole amount for the IP.
.

that does smell a little bit like this

http://somersoft.com/forums/showpost.php?p=120656&postcount=6


ta

rolf

 

[Aaron_C]

Ok. When people say 'borrow 100%' it means cross coll. Be careful.

 

[Digger253]

I greatly appreciate all of the advice. Thanks again.

 

[Terry_w]

Does this advice sound correct? Is that the correct strategy for obtaining the finance for our first IP. My quite limited understanding of IP loans was that it was better to have them with separate lenders.

Is it correct? In what sense?

It is one option, but may not necessarily be the 'best' option.

Your broker could be aiming for another commission, or maybe considers St G to be better than your current lender.

 

[vaughan]

My confusion comes from recent advice that we were given from a mortgage broker who suggested that we obtain a loan from St George for the purchase of the IP and that we would also move our existing home loan over to St George as well. In short, both the mortgage for PPoR and future first IP would be with St George Bank.

That structure maximises the commission returns for the broker. Does not necessarily do anything fancy for you.

Do not cross-collaterialise.

Spend your equity only on deposit and buying costs for the new IP. The IP should have a new loan against itself. Weigh up the cost of LMI to borrow 85%, 90% or 95% of the loan to reduce the amount of your own money you need to pay for the deposit, that leaves more of your money for improvements, deposits for more IPs, and buffer.