Equity manager vs top up loan for subdivision?

[mdiddy]

Hi

I'm subdividing my IP and the bank is offering the following:

Scenario 1
Equity Manager
Balance $60,000
Interest Rate 5.78%
No set repayment
Loan approval fee $600
Loan administration charge $150 per year

Scenario 2
Re negotiate existing loan with additional $60,000
Interest rate 4.87%
Term remaining 30 years (this can be reduced if you prefer)
Loan approval fee $0
Redraw available

Most likely wont use the full amount (may only come to $40,000 in costs, but thinking I need the extra there just in case)
I'm thinking the 2nd choice, but am I missing anything here (pros - cons)?

Anu help appreciated, thanks...

 

[Rolf Latham]

Sounds like ANZ

really a question for YOUR tax people, as to how you get the cash OUT and pay for the investment cost. Some peops dont like term loans becasue the cash needs to be flushed through an offset acct, rather than a drawing made direct from the loan

Both products can be set up so they are charging interest for the amount used.


ta
rolf

 

[mdiddy]

Thanks Rolf,

Is there a better strategy? And yes, its anz.
Looking at the interest on the equity manager I'd pay a lot less interest compared with re negotiating existing loan.

Could I refinance the equity manager once subdivision is done?

 

[Terry_w]

Have you had tax advice on apportioning the loan and deductibility of interest in general?

 

[Rolf Latham]

Could I refinance the equity manager once subdivision is done?

assuming that your serviceability is there, and the equity is there yes.

i know these things are supposed to be easy tick and flick non credit critical, we are still running into issues on some of these

ta
rolf

 

[mdiddy]

Have you had tax advice on apportioning the loan and deductibility of interest in general?

No, only on asset holding and/or selling (gst etc). This would be a good idea, thanks. However, I think it's time I changed accountant...

 

[mdiddy]

assuming that your serviceability is there, and the equity is there yes.

i know these things are supposed to be easy tick and flick non credit critical, we are still running into issues on some of these

ta
rolf

Would it be more beneficial to go for a LOC (bank manager said the equity manager behaves similar to LOC)?

 

[Terry_w]

Equity manager is a LOC.

In my view, and I am speaking as a feminist here, you should only use a LOC to access equity to pay for investment expenses - which is what you appear to be wanting to use it for.

Once the settlement is all done you will need to split the loans, ideally anyway, into 2 in proportion to the amounts for each title. At this point you can change loan types around to IO term loans.

 

[mdiddy]

Equity manager is a LOC.

In my view, and I am speaking as a feminist here, you should only use a LOC to access equity to pay for investment expenses - which is what you appear to be wanting to use it for.

Once the settlement is all done you will need to split the loans, ideally anyway, into 2 in proportion to the amounts for each title. At this point you can change loan types around to IO term loans.

Why is it important to split the loans post settlement? (and it's a 3 lot subdivision, so 3 separate loans?)...

 

[Terry_w]

Why is it important to split the loans post settlement? (and it's a 3 lot subdivision, so 3 separate loans?)...

It may be a good idea. Because the interest on the big loan will relate to 3 different properties. if you sell one you will need to stop claiming the interest on any loan associated with that sold property - which may be hard to do with one big loan. You would need to split before you paid down that portion. If you didn't any repayment into the big mixed loan would also come off the other portions - tax mess.

 

[mdiddy]

It may be a good idea. Because the interest on the big loan will relate to 3 different properties. if you sell one you will need to stop claiming the interest on any loan associated with that sold property - which may be hard to do with one big loan. You would need to split before you paid down that portion. If you didn't any repayment into the big mixed loan would also come off the other portions - tax mess.

Ah, makes very good sense. Thanks for your feedback.

 

[Martin Walmsley]

Hi

I'm subdividing my IP and the bank is offering the following:

Scenario 1
Equity Manager
Balance $60,000
Interest Rate 5.78%
No set repayment
Loan approval fee $600
Loan administration charge $150 per year

Scenario 2
Re negotiate existing loan with additional $60,000
Interest rate 4.87%
Term remaining 30 years (this can be reduced if you prefer)
Loan approval fee $0
Redraw available

Most likely wont use the full amount (may only come to $40,000 in costs, but thinking I need the extra there just in case)
I'm thinking the 2nd choice, but am I missing anything here (pros - cons)?

Anu help appreciated, thanks...

Go back to ANZ

Ask them to rewrite your existing loan under Breakfree package (it sounds like you are on simplicity plus at the moment)

Ask for a LOC under the Breakfree package as a seperate loan.

Things to consider when talking with them:

1. Breakfree Package has an annual fee of $375
2. It will ensure there is no establisment fee on the LOC ($600 saving right there)
3. 4.73% should be the highest rate they offer on the existing loan under breakfree (if done through the branch, I can not speak for broker channel) add 10bps for the equity manager
4. Under the Breakfree if and when you do decide to split into 3 loans there will be no fee as it will be covered under breakfree (saving you another $1050)
5. Go to a different lender as it appears the one you spoke to originally has taken little interest in hearing you as a customer and has basically given you bare mimimum service as your loan is not going to help them hit there $4 mil a month target