finance structure

[Reality Cheque]

Hi,

Currently looking to buy an IP and have two options( that I know of!) to do it.

I have a PPOR worth $350,000 with $10,000 remaining on the loan.

I've had an offer accepted on an IP for $250,000. All my spare cash has been poured into getting rid of my PPOR debt so I don't have a cash deposit only the equity in my PPOR.

The way I see it I have two options-

1. redraw the $50k deposit plus legals/ stamp from my PPOR loan and borrow $200k against the IP

2. Borrow the whole amount against the IP and use the equity in my PPOR as security.

I know it's best to max the debt on the IP but a lot of people here say it's best not to cross collateralise.

What are the pros/ cons?

Thanks

RC

 

[Rixter]

This topic including the pro's & cons has been discussed at length on SS... if you do a search you will finds lots of threads on it. Enjoy the reading

I started out using Option 2 then with experience progressed to Option 1.

 

[Rolf Latham]

Option3:

cut a separate loan sceured toyour PPOR for 660 or 65 k to cover 20 % deposit and stamo duty, thence do an 80 % lend 200 k secured only to the new IP


done

ta
rolf

 

[Terry_w]

Option 4, borrow from a third party and refinance this loan when you set up your bank loans effeciently.

 

[Reality Cheque]

Option3:

cut a separate loan sceured toyour PPOR for 660 or 65 k to cover 20 % deposit and stamo duty, thence do an 80 % lend 200 k secured only to the new IP


done

ta
rolf

To cut a separate load secured to my PPOR I'd have to pay out my PPOR loan completely because it was for $305,000 so not enough extra equity there for another loan. I wanted to keep the existing loan attached to my ppor as a source of immediate funds.

RC

 

[Aaron_C]

Redraw for now and borrow the rest.

 

[Reality Cheque]

Redraw for now and borrow the rest.

That was my initial thinking. If I redraw $60k on my PPOR I'd have that paid off in 12 months. So although it's not deductable it's not going to be sitting there for that long.

RC

 

[Shahin_Afarin]

If only you could go back in time and not paid that PPOR loan down. Instead built up your offset account!

1. change the current loan to an IO and stop paying it down
2. Order a few upfront valuations and draw upon 80% of the value of the property - even if you dont need it today. So if its say worth $350,000 then borrow $280,000 against it. USe the funds for future purchases.
3. Keep the new purchase of $250,000 as a separate loan and don't x-securtise

 

[Shahin_Afarin]

....and whatever you do don't cross contaminate the tax deductibility of each of the loans.

 

[Reality Cheque]

If only you could go back in time and not paid that PPOR loan down. Instead built up your offset account!

1. change the current loan to an IO and stop paying it down
2. Order a few upfront valuations and draw upon 80% of the value of the property - even if you dont need it today. So if its say worth $350,000 then borrow $280,000 against it. USe the funds for future purchases.
3. Keep the new purchase of $250,000 as a separate loan and don't x-securtise

The PPOR loan was previously on a fixed rate with no option to have an offset. When it comes to a PPOR loan whats the difference between having an offset and paying the loan down and having a redraw facility?

I could redraw the whole amount tomorrow and put it in an offset but how would that change things?

With regard to point 2-

The only way I can borrow against the PPOR at the moment is to redraw. Are you saying I should redraw on the existing loan or pay it out and take out a new loan secured against the PPOR?

RC

 

[Aaron_C]

1. Redraw for now due to time constraints.
2. When the dust settles, fix up the loan structure on your PPOR. One loan split for the new redraw amount for the IP, and another loan split for the rest (if you choose to get more equity out). You can either refinance or stay with the existing lender for this - your choice.