Modelling LOC in PIA

Hi there,
Am new to the forum and couldn't find a logical place to put this so please excuse if wrong place.
I am a PIA user and attempting to use to model my situation. Am just purchasing first investment property.
We own our home but using a LOC to fund the deposit - up to 20% to avoid mortgage insurance.
The other 80% will fund with a separate loan.
I can't figure out (and maybe there isn't a way) to model this situation in PIA. The separate mortgage is easy but the LOC for 20% which is also obviously used for tax purposes escapes me.
Any suggestions appreciated!

Thanks
 
PIA Help

I don't use PIA much these days, but in my version under the spreadsheet interest it allows a multiple of options for Loan A and Loan B.

Options are IO, P&I, Capitalise Interest or Credit Line.

Obviously your mortgage would hopefully be IO (or P&I) and your LOC borrowings would be Credit Line.

In the past I have found that emails to the supplier (Ian Somers) were always quickly answered.

Good luck.
 

Ian Somers

Moderator
Staff member
While the forum is a great place for sharing experiences with other investors, I have found that the most effective way of answering questions on PIA is by direct communications. The software has a "Support On-line" feature under its Help menu which simply generates an email addressed to me and attaches a copy of the file that you are working on.

In this case Joe is almost correct. To model the situation described you may need to use two loans (Loans A & B in the Interest & Loan Type dialog). Loan A is the simple one in that it will describe the investment loan that makes up 80% of the amount. The second one may well be a draw down on an LOC that is secured on another property (home), but it will most likely not be used as a Credit Line as defined in PIA. Let me explain...

The Credit Line option in PIA is set up so that all available cash is channelled through that account. This generally results in that loan being repaid at breakneck speed and the cash flow is highly negative over that period. This is OK if you are paying off non-deductible debt like your home loan, but is probably not what will happen in reality for your investment finance. I would suggest that the 20% loan, while borrowed from a LOC account, will only be re-paid as and when you need to. In effect, it will simply act like another interest-only loan, albeit at a different interest rate than your 80% loan. Thus I would probably describe it, for modelling purposes, as an interest-only loan type.

If you wanted to show lump sum repayments from time to time, PIA will let you do that. If you wanted to describe regular repayments, then just make it (the 20% loan) a P&I loan. The bottom line here is that you should not get confused between the purpose of the loan and the collateral for the loan. In this case the purpose of the 20% loan is to finance an investment and while the source is from a LOC facility secured elsewhere, you determine the repayment schedule and therefore the type of loan it is.

Hope this helps.

Ian
 
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