Correct structure?

[Lukey13]

About to purchase my first IP, I thought I'd check whether my finance structure is sound.

Current PPOR:
Value: $400K
Owing: $250K (Suncorp fixed rate of 6.55%)

IP to be purchased:
Value: $335K
Costs: $15K

Loan 1
$82K borrowed against equity in PPOR
($15K costs + $67K deposit for IP)
Despite LVR of 83%, LMI applied to $82K = >$500
Suncorp 5 yr fixed rate of 8.32%

Loan 2
$268K borrowed against IP at 80% LVR
Suncorp 5 yr fixed rate of 8.32%

Thus, the end result is 3 loans, 2 secured against PPOR and 1 against IP. LMI would be minimal. Nil application fees and a single monthly account keeping fee due to being part of their "package" deal.


If this finance structure is sound, my next question would be, how would I likely structure another IP in 2009 by accessing the increased equity in both my PPOR and IP which would have gone up anywhere between 10 and 20% within that time? For instance, would I simply increase the $82K loan against my PPOR and then create a new loan to access the small amount of equity in IP1 whilst creating another loan (likely over 80% LVR) against the new IP? Or would a LOC be able to use both PPOR and IP1 as security instead?

 

[Rolf Latham]

Hiya

Seems generally fine, you are keepoing your prorperties and loans separate.


Be aware that pull further equity for the next dea you need to be able to fit the Suncorp servicing model.

When pulling equity Id still keepthe places separate, yes,more work, a few more loan contracts more filing, but will likely pay divididends in the long term.

If you cant service more debt out of that structure with Suncorp TODAY, then you need to look at structuring in such a way that u dont sterilise the equity currently in the places and the future equity growth.

ta
rolf

 

[Bradsdad]

About to purchase my first IP, I thought I'd check whether my finance structure is sound.

Current PPOR:
Value: $400K
Owing: $250K (Suncorp fixed rate of 6.55%)

IP to be purchased:
Value: $335K
Costs: $15K

Loan 1
$82K borrowed against equity in PPOR
($15K costs + $67K deposit for IP)
Despite LVR of 83%, LMI applied to $82K = >$500
Suncorp 5 yr fixed rate of 8.32%

Loan 2
$268K borrowed against IP at 80% LVR
Suncorp 5 yr fixed rate of 8.32%

Thus, the end result is 3 loans, 2 secured against PPOR and 1 against IP. LMI would be minimal. Nil application fees and a single monthly account keeping fee due to being part of their "package" deal.


If this finance structure is sound, my next question would be, how would I likely structure another IP in 2009 by accessing the increased equity in both my PPOR and IP which would have gone up anywhere between 10 and 20% within that time? For instance, would I simply increase the $82K loan against my PPOR and then create a new loan to access the small amount of equity in IP1 whilst creating another loan (likely over 80% LVR) against the new IP? Or would a LOC be able to use both PPOR and IP1 as security instead?

Increasing the $82k may bring about penatlies as you mentioned you were taking a fixed rate term. Maybe the LOC for this portion at Variable so it's easier to increase in the future. Either that or you'll need a seperate loan to cut out the penalties.

Glanced at Rolf's post and he makes a valid point about serviceability and Suncorp in the future. Maybe it would be an idea to look at a different lender down the track for IP2 balance required and even look for a lender who used an alternative Mortgage Insurers so all you eggs don't end up in one basket.

Regards
Steve

 

[Spectre]

Realise you'd stay with suncorp for the first bit due to the fixed rate savings but dont see why you'd stay w/them long term. Espec for IP2 onwards.

You'd almost consider borrowing to 90/95 on ip2 and having the extra funds for the next purchase in an offset or something similar - as noted above that way you wont have a headache with them when IP3 rolls around.

 

[imonmyway]

What are the benefits of borrowing the deposit and costs as a seperate loan? Is this to avoid cross collatorolisation?

 

[Peter_Tersteeg]

What are the benefits of borrowing the deposit and costs as a seperate loan? Is this to avoid cross collatorolisation?

It does avoid cross collateralisation. It also maintains a clear distinction of which loans are for investment use, and which loans are for personal use. The makes record keeping for tax purposes much easier.

 

[Spectre]

One thing to note is that if you x-coll w/a lender then want cash out to avoid x-coll'ing some lenders max lvr is 90% for cashing out... which is where rolf was on about lenders who would cash to 95/97... usually (for me) being cba and westpac.

But its often a mortgage insurer policy - and different banks get different deals with mortgage insurers.

So sometimes that extra 5% makes a lot of difference, and if you're not using a mb who knows which bank does what then you have to check with the lender as to their requirements as once you sign up and youre locked in...