Finance

[Marco]

Hi all,

Can someone explain and advise perhaps on the following?

I'm looking to use equity in my IP (once PPOR until relocated due to work) to purchase another place that will become my PPOR.
I've had advice from an independant M/Broker who suggested a competitive product from BankWest that was structured as a 100% Offsett loan, however as nice as the broker was I felt that he was swamped with work and did not spend the time with me that I needed to help understand other products on the market etc. (what do I expect for free)

Anyway,
After reading through this invaluable Forum it has opened my eyes to using a LOC from my IP to purchase my next property.
Can someone elberate on how this would work....
e.g.
would i be right in assuming that an LOC would be more benifical in the fact that both properties would be seperately morgated and therefore more independant in times of trouble?

Thanks in advance.
Marco

 

[Rolf Latham]

Hi Marco

The Bankwest Product is OK for what you want to do. BUT Bankwest also have a loooove for cross collateralisation.

Your broker will have to work so that the props are not xcolled.

LOC per say is in no way superior to 100 % offset in the Bankwest Product Range, unless you require I/O for the full term of the loan in which case you do pay a premium on the interest rate.

I prefer my clients to use offset accts with Interest Only Loans, but much depends on the borrowers individual situation, especially on what is planned in the next 1 year, 3 years and 5 years.

Ta

rolf

 

[Marco]

Thanks for the reply Rolf.


Rolf;"Your broker will have to work so that the props are not xcolled."

Forgive me Rolf, but how do we structure it so that there is no Xcollat? I assumed that Property One is to be re-morgated and used as security for Property Two....or am I missing something?


Rolf;"I prefer my clients to use offset accts with Interest Only Loans, but much depends on the borrowers individual situation, especially on what is planned in the next 1 year, 3 years and 5 years."

I know it's hard to comment without knowing all the financial facts, but lets say our plan is to acquire this PPOR ontop of our IP, as described above, then within the next five years, or sooner, obtain another IP prior to having kids.
What sort of loan structure would you recommend once a third property is put into the equation?

Thanks in advance,
Marco

 

[Rolf Latham]

Hi Marco

Begin with the end in mind as the cliche goes.

Xcoll discussion is one of my hobby horses, and I have yet to hear a good argument that it is of benefit to the borrower in 90 %. Rarely it is, usually xcoll is only in the lenders favour.

Get your broker to lay down the rules to the lender or take your business to another lender. Xcoll - no play, real easy.

Take out loan 1 to refinance your existing IP debt.
Take out loan 2 with same lender to provide for deposit and costs for new PPOR.

Take out loan 3 to finance new PPOR at required LVR.

In six months or a years time when you want to buy IP 2, you top up (or refinance if lender doesnt allow top up) loan 1 and take out another loan against PPOR to pull extra equity growth.

You use the proceeds of both those loans to pay for a deposit and costs for IP 2 and take out loan 4 with IP 2 securing itself.

Some lenders systems suit the above approach better than others, and one needs to be aware that interest rate may be of a lesser consideration than product flexibility depending on your needs which are mapped by your goals.

ta

rolf

 

[Philby]

Originally posted by Marco
Thanks for the reply Rolf.


Rolf;"Your broker will have to work so that the props are not xcolled."

Forgive me Rolf, but how do we structure it so that there is no Xcollat? I assumed that Property One is to be re-morgated and used as security for Property Two....or am I missing something?


Sorry guys but xcolled & Xcollat - shorthand for?
Excuse my ignorancebut am still learning
Cheers and TIA
Philby

 

[Rolf Latham]

Hi Philby

xcoll is where you have more than one line of security per property, for example a second mortgage is taken on the first to provide collateral security for the second.

Mostly preferable for the borrower to take an actual additional loan on the first property and take the CASH as secuirty to the other property loan. This means the two properties are NOt tied together.

ta

rolf

 

[Sim]

Originally posted by Philby
Sorry guys but xcolled & Xcollat - shorthand for?

Rolf gave a nice definition (which is useful), but didn't actually answer the question !

xcoll/xcollat/xcolled = cross-collateralise (or cross-collateralisation, or cross-collateralised etc)

 

[Marco]

O.k...

Getting back to the X-coll on property.
If for aguments sake you have two properties that are financed so that there is No X-Coll between the both of them.....

Then god forbid, something terrible happens, repayments are not met....etc.

The lendor sells property number 2 and does not recover all of it's costs....and this may be a legal question but even if the the two properties are not linked in finance doesn't the lendor, by law, have the power to reposses or sell whatever they need to recover their expenses, including property number one???

anyone?

 

[Rolf Latham]

Hi Marco

Indeed that is the case BUT they will have to through a more longwinded process than excercising their rights on a mortgage.

When in trouble time is very valuable.

Ta

Rolf