Loan Strategy

[imonmyway]

Hi

I want to increase my IP stocks this year but am wondering what the best strategy in terms of loan set up is.

I have 2 loans that are Cross Collaterised

PPOR: Which i owe 282k on valued at 450k this is a standard Principle and Interest loan

IP:I recently purchased for 287k for which I borrowed 302k for. This is rented out at $270 per week. My current after tax payments are about $700 per month to cover the shortfall.

I can comfortably afford to cover about $2k a month shortfall to hold investment properties so feel fairly safe with interest rises.

I would like to buy another couple of IPs over the next 18 months.

So should I see the bank and arrange for a revaluation in about 6 months for a LOC loan to give me funds to purchase properties or just wait till I reckon I have enough equity for a 80% LVR and purchase another property borrowing the whole lot again.

Also If I have a LOC loan and I use a portion of this to put a deposit down do I borrow the total cost and pay down the LOC costs outlaid for the IP loan

I understand that at some point I get the bank to un cross the loans which could probably be done at the time of valuation

All this is of course relient on continued capital growth and my beleif that I bought fairly well.

Is it best to go to another bank to setup the LOC and or IP loan or stick with your current institution. Im currently with stgeorge and have a proffessional package

 

[Qlds007]

Imon

Regeretfully you wont uncross the loans if you stay with SGB as it is a condition under the Advantage Pro pack that they be crossed.

Might want to seek a MB to unravel the situation and avoid any future mess.

 

[kegger]

definately UNCROSS them before it gets worse!

We have 5 props (inc ppor) and have hit servicability with STG and have to uncross the whole lot. Wish to hell we had of thought about it more before going with the portfolio loan. oh well. live and learn!

You will, eventually, hit the servicability limit, and the banks will say 'sorry, no more money for you!", then you'll either have to stop (yeah right!) or uncross them all... much easier to do when you only have one!

good luck.

 

[Rolf Latham]

Hiya

So many bankies some brokers and many investors feel xcoll is valuable to them, in some cases it can be, in many it can be a real hindrance in moving forward,

ta
rolf

 

[wagnman]

I was talking to the CBA yesterday (our PPOR mortgage is with them) about buying an investment property and they said "no worries" and than we could easily do it based on our salary and the equity of our PPOR. They said that we would borrow against the equity to use as deposit on the IP and get a IO loan for the IP.

To asess the deal the value of the two properties would be established and the total loan amount would be figured out and both properties would be used as security.

Is this what you refer to as cross - colateralized?

Is there a better way I could get an IP without having to use my PPOR as security on the IP? (ie use only the IP as security on the loan that we would need to get to buy the IP)

 

[Rolf Latham]

Hiya Wag

Yup

thats xcoll

You can avoid this by taking a loan of say 20 % + costs againsts ONLY the PPOR for the deposit and the costs, and the do an 80 % sole secured against the IP for the IP loan.

banks will generally try the xcoll thing, it gives them more control than u in most cases.

More often than not, you are better served either NOW or in the future to structure the loans separately for a number of reasons, but mainly flexibility for the future

ta
rolf

 

[wagnman]

Thanks Rolf.

The way the bank said to use both properties as security rang alarm bells for me straight away.

It shows I have learnt something from this forum already.

So by saying that I should get a loan against the equity in our PPOR for 20% plus costs you are saying that (as an example) if we were buying a $100K house I would borrow $20K + what ever the costs would be involved in buying the IP from the equity in our PPOR right?

This loan would be secured against the PPOR already anyway but it would not involve any security on the IP.

Then use the $20K as deposit on the IO loan for the IP useing the IP as security for the IO loan.


Would this structure make the bank want to loan us less money?

 

[Rolf Latham]

Hiya

Thats the right way.

Unless you are a marginal case with that lender, cross coll normally means no more money, can even be less depending on mortgage insurance exposure and so forth.

ta
rolf

 

[wagnman]

Cheers Rolf.






OH and sorry to the orriginal poster for hijacking this thread. Its just really good info for me.

 

[imonmyway]

thats ok i realise my setup isnt ideal but its not going to ruin me and im probaably stuck with it for the next few years but my main question is were to from here can i get a loc against to cross col properties and is it best to use another institution for this or stick with your current one. Also who is currently offering the best rates for equity loans.

 

[Rolf Latham]

Hiya

to get an equity loan against ur current portfolio.............only your current lender will do that unless you have lvrs less than 70 % in which case someone may do a secod mortgage at sane rates

ta
rolf

 

[Peter_Tersteeg]

Wangman, banks tend to like having your properties cross collateralised as it ties you more closely to them as a lender. Depending on how much you've got with them, it can be very difficult to undo it later.

Lenders give brokers training in their products and policies. One of the things in the CBA training was bascially 'how to set up a customer so they'll never leave the lender'. Cross collaterlisation was one of the techniques suggested.

Banks don't advocate cross-collateralisation for your benifit.

 

[cgw]

Yes, and who ever you use, make sure you donot ask too many quesions, and get them to go through it again on the white board, and then take it home and put it through your own spreadsheets that prove their spreadsheets to be wrong.
Only joking, this is starting to happen to me. I can see I am asking too many questions and MB is getting annoyed. I told him today, you call it over analyse, I call it research and due diligence. This must be a sales pitch, to get me to stop asking too much.
I know we all sometimes get carried away with over analysing, but I would rather overanalyse, than underanalyse.
People make mistakes, from my PM, Accts, MB, FP and Banks.....
If I believed everything they told me all the time, I would be making their job easy, and trust me, I do not ask dumb questions, they wanna be in my gang, they can work for it, until I can sleep at night and trust them.
Integrity first for business.