Loan restructuring advice

Hi all

Have been lurking a while and trying to gain as much knowledge here as possible from the experienced members' responses on a number of topics. Time for a first post specifically about our situation and some feedback to help us move forward.

Am seeking some advice on how best to restructure our current loans so we can actively pursue building our portfolio.

History and current loan structure is as follows:

Previous PPOR in NSW was purchased 2003 for $458K and valued at $720K in 2012 when we did a title transfer from joint tenants into my wife's name partly for asset protection (I am partner in a business) and also to refinance for purchase of a new PPOR in north QLD where we moved in 2012 and to convert NSW PPOR to our first IP as well as to hold it in case QLD move didnt work out and we wanted to return.

NSW PPOR was recently unencumbered at time of title transfer. Property was valued for the transfer and my wife took out an IO loan for half of valuation plus costs - $372K. That is currently positively serviced by rent of $580pw.

At same time she was pre-approved for another P&I loan of $395K for new QLD PPOR. This gave us around $750K to go house hunting with including using my proceeds of title transfer of NSW ($360K) paid to me when she took out the IO loan.

Purchased QLD PPOR in Jan 2013 for $700K. Loan and title in her name again for asset protection and my income significantly reduced post move anyway so loans were only based on her income of $130K.

Both loans are with Macquarie not crossed. PPOR loan balance $313K currently with $80K redraw available. Current estimated value approx $730K.

NSW IP is CF positive currently as it should be with loan of $372K on $720K property but being a rural property on the outskirts of Canberra we dont feel terribly secure in terms of tenancy. We have had a change of tenants since letting out in late 2012 and had to drop a little to get the current tenants. They are about to enter their second 12 month lease with us.

We realise that our old PPOR may not have been the best choice for an IP but it was done for other factors previously outlined, one of which is now less significant - the possibility of the move not working out. We are very settled and enjoying tropical north QLD.

One option to move forward is to sell NSW, take small CG hit for two years as IP and use proceeds to start a new portfolio. Problem with that is its pretty much bottom of the market in ACT and NSW surrounds where the property is so we might be better off holding. However we have achieved some reasonable growth from the time we originally purchased in 2003, just not from the time we refinanced for the title transfer.

Another option is to hold and refinance NSW IP and set up an LOC or offset loan. Is this a better option and are we able to refinance to access some of the equity we have in the IP even though that equity is there because it was a paid off PPOR before the title transfer? Does that matter or is she able to do an 80% LVR IO LOC on NSW to access equity for a deposit and costs on a new IP assuming serviceability stacks up?

We have had advice from a specialist property investment mortgage broker with a that this second option is possible - he suggested Westpac LOC product as IR would be 4.78 and he said they are the only bank not to charge a higher rate on their LOC and no valuation, setup or monthly fees other than annual $395 which would also cover multiple loans if we refinanced PPOR as well or needed new IP loan.

Was hoping the brokers here might confirm if the above sounds possible or if they have any other structure or refinancing strategies we might consider.

We are hoping to reduce our PPOR nondeductible debt as quickly as possible while building a portfolio balanced with some CF+ and CG properties to set us up for retirement in 10 years time.

Also any advice on potential debt contamination with the above scenarios would be appreciated - Im still struggling to understand how that works and whether it is something that could affect us in our current our proposed structures.

Very much appreciate any comments you care to respond with and the time you all generously give to even read through let alone answer posts like mine.

Cheers
 
One option to move forward is to sell NSW, take small CG hit for two years as IP and use proceeds to start a new portfolio.

Just on this bit. You might want to look it up. To my understanding you get 6 years CG tax free if it was your PPOR first. But that might be void becuase you claimed the PPOR in QLD.

Well done on paying off that much of the PPOR's. There is alot of knowledgeable people on here and I am sure someone will have more valuable comments soon.

Best of luck!

Fresh.
 
AC your email is long and confusing. I am not sure what you are asking exactly.

A person can take out a LOC on property A and use the money to purchase property B with the interest on the LOC being deductible.

Also did you seek legal advice on the asset protection aspects because transferring a share of an existing to the spouse provides little asset protection. Have you heard about the Cummins case and/or constructive trusts?
 
Thank you fresh investor - yes understand that there is a 6 year window to avoid CG but I believe only if alternative residence is a rental and not PPOR. We understood that should we sell NSW it would attract a pro rata CG component should we sell once we purchased a new PPOR in QLD.

Terry thanks for your reply - sorry for the confusing long winded post - just wanted to give as much background as possible but probably way too much info.

I believe you have answered my question in that there would be no problem releasing some equity in the IP we dont currently have access to by restructuring the finance on that property to be LOC. What would be problematic I understand is if we released that equity and attempted to use some of those funds to reduce the principal on our new PPOR. That's not our intention of course.

Re asset protection, our accountants advised that asset protection was certainly not assured by the title transfer. The primary purpose for the transfer was not to defeat creditors but so my wife could make our old PPOR her IP as well as take out an additional loan for a new PPOR in her name. All loans were approved on her income only. Understand that any protection may be flimsy at best (have read a short summary of Cummins at your suggestion) and no we didnt get separate legal advice other than the firm that performed our transfer who advised similarly that if the purpose was for asset protection claw back would be likely in a bankruptcy situation.

One further question then - would you advise changing both loans over to another lender or keep the P&I with Macquarie?
I like the idea of different lenders for PPOR and investments but a broker suggested we would get better value with all loans together with one lender. He was the one who suggested Westpac's LOC product. I am mindful of other advice I have read to spread your loans across different lenders.
 
One further question then - would you advise changing both loans over to another lender or keep the P&I with Macquarie?
I like the idea of different lenders for PPOR and investments but a broker suggested we would get better value with all loans together with one lender. He was the one who suggested Westpac's LOC product. I am mindful of other advice I have read to spread your loans across different lenders.

Generally I wouldnt use macq as a lender of first choice unless there was a niche need to do so.

Having said that, if your monye habits are ok, convert all your loans to IO,or perhaps their LOC product with global limit and then talk to a decent planner about debt recycling which will help to kill your new PPOR debt more quicklu ( usually).



ta
rolf
 
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