First IP - please advise on my proposed loan setup

[shab]

Hi folks,

I'm relatively new to the forum and hoping to start my property investment journey in 2014. I have applied for my loans, and just received a call from my bank manager at Westpac to come in and sign the paperwork for Loan #1 (20% + purchase costs for IP). The issue is that she confused me with talk about where the funds were going to be deposited and how I'd have to start paying the interest on the loan straight away (even though I haven't purchased an IP yet). My mortgage broker is on holidays for the next couple of weeks so I'm hoping to sanity check the current plan before going in to my bank to sign any paperwork.

Here are the two accounts I currently have:
Westpac Account #1: Savings Account (currently a Classic savings account, but will revert to the PPOR Rocket Repay offset account in July 2014).
Westpac Account #2: PPOR Mortgage Account (currently fixed but will revert to the Rocket Repay variable offset account in July 2014).

I am planning to get 2 loans for the IP:
Loan #1 (Westpac): 20% of IP + purchase costs (stamp duty, solicitor etc) secured against the equity in the PPOR.
Loan #2 (ING): 80% of IP secured against IP.

The manager at Westpac told me that when I complete the paperwork, they will deposit the funds into my Savings Account. I'm pretty sure this is not the way to go, based on the recent thread "Line of Credit or a separate loan please help" and Terry_w's orange juice/milk analogy about mixing personal and investment funds. So I asked if we could just create a new account (Westpac Account #3) and deposit the funds there. She said that we could, but that I'd have to start paying interest as soon as the funds were deposited because she thought (wasn't 100% convincing though) that I could only have one offset account (which I already have as the PPOR mortgage offset account, even though it is not currently "active" while the mortgage is on the fixed interest rate until July 2014).

My aim was to have the funds ready to go so that I can move quickly on purchasing an IP. At this stage I'd appreciate any advice on whether I'm on the right track, and how other people deal with this situation? Is it possible to get Westpac to set me up with a second offset account so that I can have the funds deposited now and not be under any time pressure to purchase an IP because of having to start paying interest immediately? Or should I just wait until I purchase an IP before asking Westpac to deposit the funds into the new account? I imagine the loan approval will expire after a set period so I'm hoping there is another option other than just stalling until I purchase an IP.

Thanks in advance for any assistance - much appreciated .

 

[Singo]

If you get a line of credit loan at westpac, you won't have to pay any interest until you utilize the funds. When you find your IP, you can access the line of credit to pay for the IP (20%+purchase costs etc) I reckon MBs here will give you more details.

 

[baby blue eyes]

My understanding is that you are setting up a separate line on your loan for the IP costs. I did so about 7 months ago with westpac the initial drawing was deposited into the same loan account leaving zero drawn down. You should question why this can't be done for you.

If they need the funds to go to an account, why can't you just repay it back to the loan and draw it down when you need to? Loan should not be tainted as it will go back to zero lent until you find your IP. Following draw downs will then be for investment and deductible.

 

[Terry_w]

Yes, don't let them deposit money into a savings/offset account if that account contains other money. Otherwise you won't be able to claim 100% of the interest.

Ideally use a LOC.

 

[Rolf Latham]

Hiya

A little saddened that your WBC BSR doesnt know their product.

With WBC Rocket repay loan, simply ask them to draw the loan and place it back into the loan that you are using for deposit and costs.

You cant do that with all lenders since some "auto close" their loans when they hit zero.

ta
rolf

 

[shab]

Thanks for the replies folks. Baby blue eyes, that's great to hear that you did this with Westpac too, so basically they create a new loan account (separate from my PPOR loan account), draw the full amount for the IP deposit (e.g. $150,000), then place the full amount back into this new account (the $150,000), and it just sits there without me having to pay interest on it? And I just redraw the funds when I've found an IP?

Rolf, honestly this is the same experience we had when we bought our PPOR. Any time we asked our Westpac mortgage manager a question, e.g. about the offset account, or whether we could make additional payments after we fixed the interest rate, she directed us back to our broker to get the answers! I thought this was odd that they were telling me to go to a third party for information about their own product, but just accepted that's how it is.

Regarding the LOC suggestions, I'll need to do more reading around this as I've been through a number of threads on them, and I am still not 100% clear on the advantages of the LOC over a standard offset account, given the higher interest rate generally attached to the LOC.