Loan Setup

[Sydney_Steve]

Just wanted some thoughts on this setup and make sure I am not creating any future issues.

I currently have one loan @ $250K:
- $35K P&I (Parental Guarantor)
- $215K IO

I want to:
- Refinance current loan, release equity ($40K), remove guarantor
- One loan with $290K IO (combined above two loans and release $40K equity)

Then create a new loan for second purchase $450K:
- Using my dad for a guarantor to remove LMI
- Use $40 equity for purchase cost, 5% deposit and a rainy day fund

Is there any issues with this setup? My dad is happy to do this and trust me so no issues there. Would this be a good strategy to purchase properties and replicate?

Thanks in advance.
Steve

 

[Peter_Tersteeg]

You've used $40k equity twice. Where's the second $40k coming from?

Removing the guarantor from the existing property requires you to be able to borrow another $40k against that property. This appears to be fine assuming there's enough equity in that property.

Then you want to:
Then create a new loan for second purchase $450K:
- Using my dad for a guarantor to remove LMI
- Use $40 equity for purchase cost, 5% deposit and a rainy day fund

There's no problem with using your family as guarantor again, especially given the first property has released their guarantee, but unless the first property has $80k in available equity, you appear to be using the same $40k twice.

I don't see a problem with the overall plan, I'm just wondering if the numbers are a little off.

 

[Sydney_Steve]

You've used $40k equity twice. Where's the second $40k coming from?

Removing the guarantor from the existing property requires you to be able to borrow another $40k against that property. This appears to be fine assuming there's enough equity in that property.

Then you want to:
Then create a new loan for second purchase $450K:
- Using my dad for a guarantor to remove LMI
- Use $40 equity for purchase cost, 5% deposit and a rainy day fund

There's no problem with using your family as guarantor again, especially given the first property has released their guarantee, but unless the first property has $80k in available equity, you appear to be using the same $40k twice.

I don't see a problem with the overall plan, I'm just wondering if the numbers are a little off.

Hi thanks fro the quick reply. Sorry, there is only $40K from the currently property.

Current Loan $250K (Property Val $360K)
- $35K P&I (Parental Guarantor)
- $215K IO

I want to consolidate this to one $290K IO loan releasing $40K equity. ($250K + $40K equity = $290K)

Is having a guarantor effectively cross-collateralizing?

 

[Peter_Tersteeg]

A parental guarantee cross collateralises your property with your parents.

It's one of those times where cross collateralisation can work to your advantage, but make sure it works for your parents plans as well.

 

[HLE]

Hi thanks fro the quick reply. Sorry, there is only $40K from the currently property.

Current Loan $250K (Property Val $360K)
- $35K P&I (Parental Guarantor)
- $215K IO

I want to consolidate this to one $290K IO loan releasing $40K equity. ($250K + $40K equity = $290K)

Is having a guarantor effectively cross-collateralizing?

It is crossing the securities with the guarantor option except the debt is solely under your name.

If there are no issues with the guarantor to use their property as least you can avoid LMI again.

 

[Brady]

Hi thanks fro the quick reply. Sorry, there is only $40K from the currently property.

Current Loan $250K (Property Val $360K)
- $35K P&I (Parental Guarantor)
- $215K IO

I want to consolidate this to one $290K IO loan releasing $40K equity. ($250K + $40K equity = $290K)

Is having a guarantor effectively cross-collateralizing?

You definitely don't want to have one $290k loan. This will result in a mixed purpose loan with funds from different properties, would then have to apportion the debt. I would be suggesting to keep the $250k as one loan IO and $40k as the other loan IO. One purpose for each loan. Nothing wrong with having multiple loans secured against the one property, preferably don't want to have multiple securities for the one loan (x-coll) - guarantor excluded.

For the $450k purchase (~$25k purchase costs etc)
$360k loan secured against your purchase property
$115k loan secured against your purchase property and the guarantor (this is the x-coll)

I don't have issue with guarantors, I've personally used them. Has allowed me to accumulate quicker with an infinite ROI. Allowed me to preserve my $$$ for development costs. Also Improved my future tax position as allowed me to preserve funds for PPOR debt.

But it can go wrong, so always ensure everyone knows the consequences.

 

[Sydney_Steve]

You definitely don't want to have one $290k loan. This will result in a mixed purpose loan with funds from different properties, would then have to apportion the debt. I would be suggesting to keep the $250k as one loan IO and $40k as the other loan IO. One purpose for each loan. Nothing wrong with having multiple loans secured against the one property, preferably don't want to have multiple securities for the one loan (x-coll) - guarantor excluded.

Hey Brady,

Thanks for the advice. So i will go from;

$35K P&I (Parental Guarantor)
$215K IO

to

$250K IO
$40K IO

Thanks again.

Probably the wrong section to ask but what is the standard rainy day fund? Is it 3 months rent? I will search the forums too.

Thanks.

 

[Peter_Tersteeg]

I don't think there is any standard rainy day fund. For some people it might be the ability to cover 3 months with no rent, for others it might be 1 year. How long can you last if you loose your job and can't get another one?

The answer is different for everyone. There's plenty of people who don't have any fallback.

 

[Shahin_Afarin]

It is crossing the securities with the guarantor option except the debt is solely under your name.

If there are no issues with the guarantor to use their property as least you can avoid LMI again.

No issues with the guarantor putting up their property as security? Are you sure about that?

 

[Vixs]

No issues with the guarantor putting up their property as security? Are you sure about that?

To be fair he did preface it with 'If'.