Portfolio Loans

F

Futurist

Hi all,

What are your thoughts on Portfolio Loans?

They are similar to LOC's where there is a maximum borrowing limit.
You are free to structure the loan as you please, and have sub-accounts with separate statements for Investment purposes.

I haven't seen many posts on here about portfolio loans.
And my broker suggested using a Portfolio loan for my situation.

Wanting to buy a PPOR next.
Have spare savings that I want to use to fund the deposit for IPs.

a. With a Portfolio Loan, I can borrow say $500k for my PPOR. So Max limit is $500k on the portfolio loan.
b. Dump my savings into the Portfolio Loan. Loan amount is lowered, so lower interest is paid.
c. Create a sub-account, and transfer (aka redraw) say $100k into a new sub account.
d. Withdraw the $100k from the sub account, and use the fund for a deposit on IP.
e. Repeat the process for the next IPs etc etc.

Sub-accounts, are considered a re-borrow, so the interest on the sub account is deductible.

This kind of acts identical to an Equity LOC loan.
Except if the borrowing is within your maximum borrow limit, you dont need Bank approvals.

Good, Bad? or very ugly?
 
@Jamie: Hmm, I believe these were the core reasons behind it:

a. I have savings that will offset the PPOR loan (putting it into the portfolio loan, lowers non-ded interest). Can be done via a standard Offset account I know.

b. I want to use my savings for the next IP, but also to maximise deductibility when I use my savings. (instead of using savings from offset, which will inc non-ded interest on the PPOR loan). Can be done via paying down the PPOR loan and then re-borrowing it back out. Although this may be impacted by the property market.

c. Minimise loan applications fees (none, or minimal, compared to full application fees for a refinance/split)

d. Minimise the number of credit checks (none needed for opening subaccounts, compared to a credit check each time I split/refinance)

-----
If as you has said its a mess, and avoid if possible.

Who will actually benefit from a portfolio loan ? Surely the back has a market for these types of loans correct?
 
They're absolutely fantastic! They allow you to move money around between different investments, get the most tax deductions, make sure interest is being charged against the right investment, etc. Financial planners love them and work with them all the time. No fuss changing loan structures within your master limit.

That's what the banks and financial planners will tell you.

The reality is everything is cross collateralised to the banks advantage. You gain some flexibility within the master limit but loose all flexibility outside of that. No offset accounts. All of your investments are put at risk as the lender has first priority. You'll pay higher fees and rates for a small amount of convinience.

A master limit could be made to work if you've only got one very high value property under it, have a very active share porfolio which you want to borrow for and you're willing to pay extra for the privlige. Generally speaking you'll find brokers don't think much of them, myself included.


@Futurist: Everything you've mentioned can be achieved with a regular loan structure.

a. Offset reduces non deductable debt in a far more tax flexible way the a portfolio product ever will.

b. A regular loan can do everything you've described with about the same amount of effort as a portfolio loan if you structure it right in the first place.

c. Most lenders professional package fees already waive additional fees ofr a refinance/split/new purchase. They're cheaper too.

d. There are no credit checks for a split. If you're doing an increase, you'll get another credit check regardless if you use a regular structure or a porfolio structure.

From where I'm standing each one of your core reasons is a moot point as it can be acheived without the portfolio facility if you plan ahead and use correct structuring. About the only thing you can do with a portfolio loan that is easier is you can omit an individual name on a sub account.
 
Futurist said:
@Jamie: Hmm, I believe these were the core reasons behind it:

a. I have savings that will offset the PPOR loan (putting it into the portfolio loan, lowers non-ded interest). Can be done via a standard Offset account I know.

b. I want to use my savings for the next IP, but also to maximise deductibility when I use my savings. (instead of using savings from offset, which will inc non-ded interest on the PPOR loan). Can be done via paying down the PPOR loan and then re-borrowing it back out. Although this may be impacted by the property market.

c. Minimise loan applications fees (none, or minimal, compared to full application fees for a refinance/split)

d. Minimise the number of credit checks (none needed for opening subaccounts, compared to a credit check each time I split/refinance)

-----
If as you has said its a mess, and avoid if possible.

Who will actually benefit from a portfolio loan ? Surely the back has a market for these types of loans correct?
Click to expand...

Be careful of the tax implications of a. seek tax advice. If the property will never ever be rented out it may not be such an issue though.
 
I think you are referring to the St George product in which case it is actually a great product but a terrible outcome for what you want to do in this situation.

the recommendation is a "lazy" recommendation.

Instead set up standalone facilities against the properties with a linked offset to each loan. Also re careful you pick a lender that doesn't have offset restrictions like ING or Macquarie. This will tick all the boxes and allow the flexibility to move a property and the associated loans when you get crappy vals.
 
Aaron_C said:
The Bank.



There is, as Peter described - if you got a decent share portfolio secured by your single real estate asset. Or people who don't mind getting cross collateralised to the max.
Click to expand...

I disagree and although there is a strong chance that there is cross securitisation involved - it doesn't mean that there just because a client is given a portfolio loan.
 
TheFinanceShop said:
I disagree and although there is a strong chance that there is cross securitisation involved - it doesn't mean that there just because a client is given a portfolio loan.
Click to expand...

For one property is just acts like a LOC which is fine. It's when you start adding extra properties in there that it becomes a dog's breakfast. Most LOCs have unlimited subaccount facility anyway so a master limit is unnecessary.
 
Futurist said:
Yes. We met via a property education program.
I've used this broker for 2 IP's now. Happy so far.

But now that i'm thinking PPOR loans, it gets 10x more complicated!
Click to expand...

so, just suggest you want stand alone loans with something discreet from your IPS, and they should be able to help.

If not............you dont have a broker, you either have a mono product sales person for a lender, or a groupie wanna be broker that doesnt understand that the broker is the agent AND at the service of the borrower.

ta

rolf
 
@TheFinanceShop

Both are standalone loans with different lenders.
Both IO.
Both 80% LVR

One of these has an offset, where I have put all my savings into for the time being.

When I get my PPOR next, the savings will be moved to another Offset linked to the PPOR loan. Then when I am ready for my 3rd IP - I will use the offset savings somehow (still trying to figure out the best way to do this) to fund the deposit for the 3rd, 4th IPs.
 
Rolf Latham said:
so, just suggest you want stand alone loans with something discreet from your IPS, and they should be able to help.

If not............you dont have a broker, you either have a mono product sales person for a lender, or a groupie wanna be broker that doesnt understand that the broker is the agent AND at the service of the borrower.

ta

rolf
Click to expand...

Rolf continous bank bashing.

Should I just on each night to give brokers *****

At least get the facts close to being right.

Mono policy maybe, mono product no.

Paid to be there for services they provide yes...

Brokers only paid for sale...see where I could go with this.

You are a respected broker and forum admin, you don't need to come up with your words to deminish peolpe. Use your knowledge to provide people with some good assistance.


OP I wouldn't suggest the portfolio, the benefit don't weigh up for me.

80% no cross with offsets for the win
 
Futurist said:
@TheFinanceShop

Both are standalone loans with different lenders.
Both IO.
Both 80% LVR

One of these has an offset, where I have put all my savings into for the time being.

When I get my PPOR next, the savings will be moved to another Offset linked to the PPOR loan. Then when I am ready for my 3rd IP - I will use the offset savings somehow (still trying to figure out the best way to do this) to fund the deposit for the 3rd, 4th IPs.
Click to expand...

Sounds good up to the part where you are going to use your savings. I would "borrow" the deposit rather than using cash to max tax deductibility.

Curious to know why he/she suggested the portfolio loan.
 
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