Cross securing to get 100% loan for IP?

My PPOR is with Westpac Rocket Repay professional package . Purchase price was 420K two years back. my loan is 330K. Interest only in Variable rate. I have 120K in 100% offset account. The PPOR might worth 460K now.

I plan to buy my first Investment Property soon. I'd like to stay with Westpac to leverage the benefit of professional package. Assuming purchase price of IP is 450K , the total cost would be 474K including stamp duty and other fees. There are two options for finance :

Option 1: Cross securing

Westpac will lend me 80% of the total value of PPOR and IP.
Assuming PPOR is worth 460K now, the loan I can get is :

(460K + 474K ) * 80% = 747.2K

330K is my existing loan. The money I can get would be :

747.2K - 330K = 417.2 K

the total cost of property B 474K will be almost 100% covered by loan. I don't need to pay mortgage insurance in this case.

Option 2: No Cross Securing.
Assuming PPOR is worth 460K now.it has 40K more equity.
So I can top up the existing loan 330K to 368K.
460K * 80% = 368K
368K - 330K = 38K

Assuming the total cost IP is 474K and lending ratio is 90%
474K * 10% =47.4K

I can use 38K equity plus 9K cash to cover the 10% deposit. Then borrow 90% from bank. I need to pay mortgage insurance in this case.

It seems like Option 1 is better . But the down side for cross securing is my PPOR will be easily impacted if I cant meet repayment of IP.

In terms of Option 2 , because both loan are with Westpac , I was told my PPOR will be impacted eventually if I cant meet repayment of IP.

Can I ask you opinion about the two options? Any idea would be highly appreciated. Thanks.
 
Hiya

The numbers dont quite gel.

The LVR in both cases shiuld be the same

Option 1

450 value PLUS the purchase price of the property ( stampsand costs doesnt form part of the valuation) so say 450. Total value 900 k, 80 % of that is 720.

You already owe 330 k so, that leaves 390, which leaves you 82 k short.

In either model. LMI would be required.

Even on your calcs the numbers are around 55 k short ?

Crossing in your model, makes the overall situation worse, with no real benefit since the LMI premium will be calculated on the total amount of loans, and will this be at a higher % than if each loan was separately secured, since there is a big step up in premiums below and over 500k

id sugggest you speak with a good independent broker to go through some of the options, and PLEASE dont burn any of your cash on a deposit without talking to someone about how to restructure your EXISTING loans to maximise the tax position.

ta
rolf
 
Option 1: Cross securing

Westpac will lend me 80% of the total value of PPOR and IP.
Assuming PPOR is worth 460K now, the loan I can get is :

(460K + 474K ) * 80% = 747.2K

$474k is the total costs but the value is still only $450k. As such the total value would be $910k giving you $728k @80%





Option 2: No Cross Securing.
Assuming PPOR is worth 460K now.it has 40K more equity.
So I can top up the existing loan 330K to 368K.
460K * 80% = 368K
368K - 330K = 38K

Keep the $38k as a seperate facility as it's for investment purposes. Mixing personal and investment isn't a good idea.


No matter if you take option 1 or 2 the funds available at 80% remain exactly the same. The amount you contribute will be the determining factor in paying LMI. You need to have weighed up the tax advantages of borrowing more on IP and paying LMI against any gearing benifits. Also by paying LMI it let's you keep more of your cash on hand which may assist with other investments down the road.


It seems like Option 1 is better . But the down side for cross securing is my PPOR will be easily impacted if I cant meet repayment of IP.

In terms of Option 2 , because both loan are with Westpac , I was told my PPOR will be impacted eventually if I cant meet repayment of IP.

Either way if you get into financial difficulty you could be impacted. An advantage of not having them crossed is that should you decide to sell one of the properties, it would be highly unlikely that Westpac would want to re-value the other property. This is of benifit should their either be a fall in the market and/or Westpac reduce their LVRs down the track.


Hope this helps


Regards
Steve
 
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Much appreciated your resonding

Many thanks to rolf , Bradsdad and ozperp for your detailed explanation. I wish I could master numbers better :)
Much appreciated your help.
 
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