Control of cashflow with Interest rate hikes and LOCs.

[stargazer]

Hi all

Not sure how one does this but if you have equity in your PPOR and have use it according the good debt bad debt ratios as follows.

Value $400,000 @ 80% = $320,000
Mortgage $200,000 at say 6% fixed
This leaves $120,000.

LOC=$120,000
Personal $20,000 not used
Investment $100,000 $85,000 used for shares interest rate at 5.45%

Now the question is if Interest rates started climbing and cashflow became tight is there a way to refinance this or not.
The PPOR mortgage is protected by the fixed arrangement
but the LOC is open to the market. If capitalizing interest could make things even more vulnerable.

cheers
BC

 

[Propertunity]

Now the question is if Interest rates started climbing and cashflow became tight is there a way to refinance this or not.

Hi BC,

If your property is still worth $400K and loan is $200K fixed and LOC of $120K is fully drawn down and max LVR's at the time it all goes pear shaped for you are at 80% max ..............then you have run out of buffer my friend.
Refi at this point will (at 80% LVR) yield no more cash.

Perhaps a better strategy would have been to use $50K of the LOC to go buy shares with a 50% LVR margin loan IF you want to buy $100K of shares. That way it is unlikely to get margin call (50% is fairly conservative) and you still have $50K of LOC (+$20K personal LOC) left as a buffer.

 

[stargazer]

Hi Propertunity

If your property is still worth $400K and loan is $200K fixed.
Correct

and LOC of $120K is fully drawn
Incorrect

down and max LVR's at the time it all goes pear shaped for you are at 80% max
The LOC Investment side of the lOC is $100,000 and $ 85,000 is drawn down for shares this leaves $15,000
The other $20,000 is a Rainy Day Personal use LOC this is not drawn down.

What i am asking is there a way to refinance this to bring in some interest rate hike protection to the LOC already drawn down and also retain the Tax deductibility to that side of the LOC.

Cheers
BC

..............

 

[BayView]

What i am asking is there a way to refinance this to bring in some interest rate hike protection to the LOC already drawn down and also retain the Tax deductibility to that side of the LOC.

Cheers
BC
..............

Hi BC,

I'm no finance broker, but I would say that at 6%, it will be very hard to beat that, so not much point refinancing if the rate is already fixed.

As for the variable part, I don't know if many banks will allow you to switch it to a fixed rate and pay a switching fee - around $350 from memory on a variable loan, because it is a LOC.

I think you may have to refinance the LOC to a new fixed rate loan; or at least the shares part of it.

I don't think the fixed rates will drop a lot more. I reckon the variables will for a bit longer - maybe a couple more months for sure.

One of our forum MB's should be able to elaborate.