Looking for advice, first IP

[MethodMan]

Hi

Just wanting to ask some advice. Have just been given the OK from the bank (verbally not in writing) for an investment property around the $380k mark. Problem is from what I can work out the loan is what is called a cross collateral loan, which from what I have read so far is best avoided. So I'm just wanting to get some opinions about my current situation. PPOR value around $370-380K mark, just over $290K principal owing, fixed until August 2016. $23K in redraw (bringing principal down to $267K), $70K salary.

One important note to add is long term I would really like to maximise my borrowing power as I live a pretty modest life and would like to focus on property investing if I enjoy it.

 

[albanga]

From those figures I am guessing you have paid some LMI? If so what was the LVR when you purchased your PPOR?

 

[MethodMan]

I don't think LMI was much, LVR was around 86%.

 

[Redom]

Hi

Just wanting to ask some advice. Have just been given the OK from the bank (verbally not in writing) for an investment property around the $380k mark. Problem is from what I can work out the loan is what is called a cross collateral loan, which from what I have read so far is best avoided. So I'm just wanting to get some opinions about my current situation. PPOR value around $370-380K mark, just over $290K principal owing, fixed until August 2016. $23K in redraw (bringing principal down to $267K), $70K salary.

One important note to add is long term I would really like to maximise my borrowing power as I live a pretty modest life and would like to focus on property investing if I enjoy it.

Hi,

Its hard to tell if your lender will cross your loans with the information provided - but if you don't know, then its more than likely.

Best to create a separate loan against your PPOR and take out any useable equity you have. If you PPOR is valued at 380k, at an 80% LVR, you can borrow 304k. This leaves you with around 15k in 'usable equity' - without having to pay LMI. You may be able to go to 90% and borrow 342k, giving you around 52k in 'useable equity' - but you will then need to pay LMI.

If you want to borrow more than what the bank are offering - shop around - by swapping lenders alone you could borrow significantly more.

Cheers,
Redom

 

[Jamie M]

Hi methodman

Nice name ODB would have been another cool option.

To avoid crossing you just need to set the loans up as follows:

PPOR
Loan 1: Existing loan
Loan 2: Equity release to cover deposit/costs on IP

IP
Loan 3: Loan against IP (with deposit coming from loan above)

You don't have a whole lot of equity so hopefully your current lender will allow an equity release up to 90%

Cheers

Jamie

 

[Rolf Latham]

Cross loans and lmi usually result in much higher lmi premiums than needed.

Then there are all the usual other issues as to why cross is usually only a good idea for bank/ broker

Ask your banker to provide you with diff structure options

If you get the deer in the headlights look, find another branch or speak with a decent broker, some of which have already replied to your post above

Ta

Rolf

 

[MethodMan]

Thanks for the replies, will follow it up.