How do investors set up their capitalising interest loan?

G'day all.

I am just wondering what the best way to set up a capitalising loan is?

Which lenders are keen to lend with this strategy?

What criteria/conditions normally apply to these loans?

I understand the potential benefits of capitalising interest especially when a non deductible PPOR loan is current.

This strategy is not suitable for me due to my current loans being high in LVR which would likely reduce my capabilities to continue to capitalise any interest.

Can someone please describe the structures involved for these two capitalising interest scenarios? LOC structure etc.

1.) PPOR $500k value. Nil loan.
intending to purchase IP to value of 500k.

2.) PPOR $500k value 50% LVR 250k Loan
IP 1 $500k value 50% LVR 250k Loan
intending to purchase IP 2 to value of 500k.


Thanks in advance
 
Your post seems to contradict itself. I'm confused.

Fist, you say it doesn't apply as you have a high LVR, then your two scenarios intimate that you have no PPoR loan?

In any case, capitalising interest is a dangerous strategy, and I wouldn't ever recommend it unless you have loads of equity and come up against financial hardship where you need to stop paying some repayments for a while to stay afloat.
 
Hiya

In both cases, you could set up a LOC secured to a property with some equity in it.


Subject to a million things, for scenario one, take an IO term loan of 115 k or so secured only on the PPOR, take a LOC to 285, thus overall lvr = 285.

Take a 400 k term IO loan ( fixed or variable accoriding to what flavout u like) secured only on the new place.

Capitalise interest for all loans to the 285 k loc.

Scen 2

Take a term IO loan of 150 k on PPOR, take a LOC of 150 on IP one. Each loan secured only to the one property.

take an 80 % lend of 400 k on new PPOR 2 secured only against that property

Capitalise interest for all loans on the 150 k loc


Thats just generic and may not be the best though, especially if u have no PPOR debt ! Numbers are very round too, so cant be applied as is .

ta
rolf
 
Thanks for replying Marc and Rolf.

Marc, the values and LVR are from a made up scenario where I tried to simplify the numbers and create significant equity.

I have a PPOR loan and am just trying to learn the basics of how people structure their capitalising interest loans.

Rolf, if I understand you correctly then a few IO loans can capitalise on the one LOC?

If none of these properties were cross collateralised, would all the loans have to be with the same lender?

Would the LOC loan + IO loan only increase up to a max of 80% total LVR for the property? Is this just a basic LMI requirement of the stand alone properties?

Thanks all.
 
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