Cross Coll/Loan Splits

[Europa]

Not me but on behalf of a family member..

Situation as follows:

Currently own PPOR outright although there is a small redraw still available on fully paid off mortgage.

Recently purchased an IP at auction, currently in settlement period.

5% deposit on exchange of IP contracts was paid by redrawing PPOR and writing a bank cheque direct from the loan. Sounds ok to me, only money drawn against PPOR is for 'purpose' of IP deposit and cheque written direct from loan account so interest fully dedcutible.

There is not enough in the PPOR redraw to finance the 15% balance of deposit and costs as mortgage on PPOR was only very small to start with.

Lender (ING), has proposed the following, Re-finance/Re-val PPOR to allow the full IP 20% deposit +costs to be drawn from it. Borrow 80% of IP value against itself. easy... Where I get worried is the lender is talking about using one product with split loans (for better rate), one for re-financed PPOR and one for the IP. Lender is adamant that the IP and PPOR won't be crossed collaterised even though they are 'splits' under the same loan product. Does this sound right? What else can be asked to confirm they are not crossed?

Also, with regards to the current 5% drawn from the PPOR to pay the deposit, once this property is re-financed and transferred to the new package are there any complications with ensuring the full 20% +costs fits the purpose tests and interest remains deductible. i.e if refinancing onto a new product essentially means paying out existing loan with new borrowed funds and then redrawing again rather than just topping up the loan is it making it messy and losing 'purpose' traceability?

Thanks in advance, appreciate some advice on this.

 

[Jamie M]

Hiya

Increasing the PPOR loan to cover off 20% deposit and costs make sense. A variation with ING is a pain though!

As long as the deposit/cost loan is securing the PPOR and the other loan is securing the IP then they'll remain uncrossed.

What products are they recommending?

Cheers

Jamie

 

[Terry_w]

It can be done without crossing securities, but don't trust a lender. Keep it simple and keep your PPOR at the existing lender and just increase the loan amount.

Keep in mind you will have a tight time frame.

 

[Rolf Latham]

ING Bankwest STG

Buyer beware.

Chase hard all day every day : (

ta
rolf

 

[Europa]

Thanks all,

I had suggested that to keep it as clean as possible they should have different lenders for the IP and PPOR, but due to timeframe and wanting to take advantage of the package 'discount' for the larger borrowing they are still wanting to go with ING and the 'splits' for both properties. So from your responses I would take that this is still risky??

Is there any definitive way to be sure the loans from the same lender aren't crossed? Is it as simple as making sure the assets listed on the loan paperwork for each property are just that property itself?

How about refinancing the property being used to draw the deposit? Could this cause an issue if it is not just a straight loan top up but the existing loan is paid out from re-draw from the new loan if that makes sense? Could the 'purpose' be lost?

 

[Terry_w]

Is there any definitive way to be sure the loans from the same lender aren't crossed? Is it as simple as making sure the assets listed on the loan paperwork for each property are just that property itself?

How about refinancing the property being used to draw the deposit? Could this cause an issue if it is not just a straight loan top up but the existing loan is paid out from re-draw from the new loan if that makes sense? Could the 'purpose' be lost?

Just tell the lender no crossing and make sure when the paper works comes that each loan has the appropriate security. If not then ask them to redo it.

Worst case you settle and fix it later. Should be low risk if you have low LVR and don't foresee financial difficulties.

Not sure what you mean about the purpose test. If you refinance a loan the deductibility doesn't change.

 

[Jamie M]

So from your responses I would take that this is still risky??

I don't think it's risky per se.

They just need to check the loan offer docs to make sure that only one property is used for security of each loan. So there should be two sets of loan docs - one for the increase and one for the purchase.

The main risk I see is ING taking too long to process it all.

The aggregate borrowings to obtain the pro pack discount makes sense.

Cheers

Jamie