Not happy with refinanced home loan results

Discussion in 'Property Finance' started by acorn123, 22nd Mar, 2015.

  1. acorn123

    acorn123 Member

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    Dear Friends, I have been reading stuff in this forum for three years and still learning. I got our home loan refinanced this month with a major bank, but not satisfied with the results. I now present our case below and welcome your comments.

    Home loan #1
    In 2009, purchased a house (our main residence) at a price of $565k, with a loan of $430k. In February 2015 , we have the following numbers for the mortgage account:
    Balance = -$52k, available fund = $312k.
    That is, we may pay off the mortgage by adding about $52k, or keep the account and buy an investment property using the available fun of $312k.

    In early March 2015, I was interested in a unit with a price of ~$460k. I went to the bank and asked for an investment loan of $630k: $400 (standard account) + 23k (offset account). I also mentioned to the bank staff, the price of my house is now about $650k. I was thinking to use our main residence as security and do not need pay the 20% deposit. The bank staff told me that they need use about 50k fund from account #1 because they can only lend me 80% of value of the house + unit.

    The refinanced home loan results are:
    (Modified) New home loan = $250k, based on an updated house price of $650k
    Available fund = ~$150k.
    Therefore, the available fund in Account #1 reduced from $312k to $150k: about $160k was used to get the investment loan of $630k, with the main residence as the security. I suspect that they used the new price $650k of main residence in the debt calculation.

    My questions:
    1. Even without refinance, I can use $160k from Account #1 as 20% deposit to get a $630k loan independently, what is the benefit of using the main residence as security?
    2. The bank used $650k as new value of the main residence, is it a bit arbitrary? Should they put the difference between $650k and original price $565k (~$85k) as (increased) available fund in Account #1? Where did they put this ~$85k (increased house value)?
    3. I talked to the bank staff, here is their response:
    ? I did explain to you when the loan was restructured in February why we had to reduce the available equity. Your property was valued by our system at $650K and the purchase price for your unit was $459,950K. We can lend a maximum of 80% for the two properties. 80% equals $887K. You requested $630K for the new Investment loan which left $257K available for the Home Loan.?

    I indicated to the bank that I am not happy with these results. I want to restore the old home loan, then I can use $160k (from available fund $312k) as %20 deposit to get $630k investment loan and keep two unlinked, because I do not see any benefit from this refinance. In addition, the house value increased form $565k to $650k, but I did not see any benefit of this increase in the refinanced results. Do I miss something?
    Any comments are welcome.
     
  2. Shahin_Afarin

    Shahin_Afarin Finance Broker

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    The structure is a bit like a dog's breakfast. You have been crossed securitised and this is not particularly good.

    I take it that the loan against your main residence is now $52k - is that correct?

    If so you need to set it up as per below set up

    Loans against main residence:

    Loan 1: $52k w/ linked offset (non tax deductible)

    Loan 2: $115k (tax deductible as it relates to the 25% deposit for the new IP)

    Loan 3: $353k (this is the equity you have available and can access - you will not pay an interest on this loan and its ready to go for the next purchase)

    Loans against new IP:

    Loan 1: $368k (tax deductible)

    This way you have:

    1. Properties not crossed
    2. Correct structure
    3. Equity release ready for next purchase
     
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  3. euro73

    euro73 Member

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    +1 - do exactly what Shahin has recommended
     
  4. Terry_w

    Terry_w Member

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    I can't understand your numbers as your post is confusing. How much is owing on your loan for instance;
    $52k?
    Or it is paid off with $52k in bank (a negative loan)
    or is is original loan paid down by $52k?
    etc

    Shahin has described your situation well - a dog's breakfast.

    It sounds like it has been mucked up completely and you could have tax issues. All due to relying on a bank staffer who doesn't know how to structure loans.
     
  5. Hooray

    Hooray Member

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    You've read this forum for 3 years and still didnt use a mortgage broker?
     
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  6. acorn123

    acorn123 Member

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    Shahin, thanks for the quick comments and suggestions!
    They have created three accounts for me (22/03/2015):

    Home loan: $250k, available fund=150k
    Investment home loan #1a = 400k, available fund =0
    Investment home loan #1b = 230k, available fund = $210k

    The unit has been purchased ($460k) and settled last week.
    Can I completely restructure all of these loans based on previous balance (-53k)? I have an appointment with the bank staff on Wednesday.
    In addition, is there something wrong for the bank in the refinance process? Apparently, you unlocked more available fund (as I expected) than the bank.
     
  7. Shahin_Afarin

    Shahin_Afarin Finance Broker

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    What they have done is contaminated the tax deductibility of the loans.

    You need to get them to set it up as per my original post.

    Was the home loan $52k prior to the set up? If so then you need to keep that split as $52k.

    Which lender is it?
     
  8. acorn123

    acorn123 Member

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    Thanks everyone for comments.
    The starting point of this case is:

    Home loan $430k, purchased at a price of $565k in 2009 (paid 20% deposit)
    Balance in February of 2015: -$53k, available fund = ~312k.
     
  9. acorn123

    acorn123 Member

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    House valued at ~650k.
    The lender is W...c
     
  10. Shahin_Afarin

    Shahin_Afarin Finance Broker

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    You would need to submit 2 new applications in order to uncross. They can't do it with a tick and flick.
     
  11. Terry_w

    Terry_w Member

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    How does a loan have a negative balance?
     
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    The structure you've got is not good, the structure you've proposed is actually worse. Sharin's suggestion is a good one.

    Rather than trying to do this yourself, call one of the brokers to get this done for you. Jamie Moore is in Canberra and Sharin is in Sydney. It doesn't cost you anything, you'll probably get a better deal than you can negotiate yourself and you'll be better informed with better advice.
     
  13. acorn123

    acorn123 Member

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    Terry, sorry for my limited knowledge in banking.
    -$52k is we owe the bank for the $565k ($650k) house.
    I thought we have an equity of $650k-$52k, or at least $565k-52k
    but this is not reflected in the refinanced results (I did not see it).
     
  14. Terry_w

    Terry_w Member

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    That still doesn't make sense.

    What is the number on your statement for loan balance? Sounds like you have lent the bank $52k?
     
  15. acorn123

    acorn123 Member

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    Terry, if we pay $52k to the bank, then we can own the house (i.e. 100% paid off).
     
  16. Terry_w

    Terry_w Member

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    Ok, clear now thanks


    I agree with Shahin, you have contaminated your investment loan by mixing deductible and non deductible borrowings.
    What you need to do now is

    Refinance the existing loan of $250k. Split it into the relevant portions ? approx. $160k and $90k (how did the $52k jump to $90k?) _seek tax advice before splitting.

    The new investment loan of $650k would be made up of 2 loans
    1. 80% loan secured by the new property and
    2. 23% (20% plus costs for stamp duty etc) from the split above ? the $160k.
     
  17. acorn123

    acorn123 Member

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    Terry, thanks for the suggestions.
    As for the old home loan, records were not kept online after closing the loan. I asked the bank for transaction records of the old home loan because I want to see the start point, and they emailed me a copy (from Adelaide) . Search my bank account online will not get anything.
    As for the new home loan ($250k), I asked how to come up with this number? Not explained well to me. It seems that this part is too arbitrary or not transparent to me
    In the process, I drew 10% of the apartment price (~50k), and a stamp duty of $14k from the available fund in Account #1 (main residence). These were mixed up in the refinance process.
    I asked for detailed transaction records, such as each direction of the fund went, and have not got anything so far.
     
  18. Terry_w

    Terry_w Member

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    There may be further issues with how you withdrew amounts and later paid them. If you drew down into a savings account then even if you used the funds for investment purposes the interest may not be deductible in full.

    This is why it is very important to get advice before doing any refinnance or moving monies around.
     
  19. acorn123

    acorn123 Member

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    Thanks, Terry.
    I thought I pay the 10% deposit first, the bank will restore it back to my account #1 after the investment loan is finalised; same as the stamp duty and fees. I did this with AN* bank before, it went through all right without any problems. Because we want borrow the purchase cost (including stamp duty and fees) from the bank, the cost should be refunded through the new investment loan, during the settlement. It seems a different practice happened this time.
     
  20. Terry_w

    Terry_w Member

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    you cannot reimburse yourself with borrowed funds and claim the interest. Therefore these borrowings will be a private expense and this further mixes your loans. Getting messier.