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From: Brendan S
G'day
I'm pretty new to the IP game, new to this forum, and am learning as I go. Our first IP is well under construction and should be ready to let just before chrissy. In order to finance the property we used the equity built up in our own home.
Prior to refinancing for the investment loan we had a LOC on our own home up to 90% of its value ($115K). This was excellent, but of course we found when it came time to shop around for an interest only (IO)loan for our IP, no one would lend us the amount required due to the fact that our house already had this 90% LOC, even though we only owed say 20% at the time. Of course this is understandable and it was obvious that we would have to for go some of the available credit. No problem!
However the bank we were with at the time had a really crap interest rate on IO loans, so we looked elsewhere. Now this is where I think we might have gone wrong!
We ended up refinancing the lot, borrowing $220K for the IP (to cover 100%, costs and all) and refinanced our existing home with the same bank to $48K LOC to live on which well and truly covers the amount we now owe on our own home. However the IO ($220K) loan is secured against the rest of our equity Leaving none (until our equity grows via capital gain).
Wow! That s long winded I'm sorry.
My question is, have we done what is referred to in this forum as the dreaded "CROSS COLLATERALISATION". Should we have kept our original LOC loan and used it for the 20% deposit and claimed this portion of interest as a tax deduction? (I didn't know this was possible at the time)
We were thinking that when the IP has built up enough of its own equity that the bank would release our equity from our own home for another IP, but now I'm nervous! Will they? Have we cross collateralised?
Your thoughts are appreciated
Ta Brendan ;o)
G'day
I'm pretty new to the IP game, new to this forum, and am learning as I go. Our first IP is well under construction and should be ready to let just before chrissy. In order to finance the property we used the equity built up in our own home.
Prior to refinancing for the investment loan we had a LOC on our own home up to 90% of its value ($115K). This was excellent, but of course we found when it came time to shop around for an interest only (IO)loan for our IP, no one would lend us the amount required due to the fact that our house already had this 90% LOC, even though we only owed say 20% at the time. Of course this is understandable and it was obvious that we would have to for go some of the available credit. No problem!
However the bank we were with at the time had a really crap interest rate on IO loans, so we looked elsewhere. Now this is where I think we might have gone wrong!
We ended up refinancing the lot, borrowing $220K for the IP (to cover 100%, costs and all) and refinanced our existing home with the same bank to $48K LOC to live on which well and truly covers the amount we now owe on our own home. However the IO ($220K) loan is secured against the rest of our equity Leaving none (until our equity grows via capital gain).
Wow! That s long winded I'm sorry.
My question is, have we done what is referred to in this forum as the dreaded "CROSS COLLATERALISATION". Should we have kept our original LOC loan and used it for the 20% deposit and claimed this portion of interest as a tax deduction? (I didn't know this was possible at the time)
We were thinking that when the IP has built up enough of its own equity that the bank would release our equity from our own home for another IP, but now I'm nervous! Will they? Have we cross collateralised?
Your thoughts are appreciated
Ta Brendan ;o)
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