Questions about investment loan

[Tenex]

I am currently with CBA because all of our business and personal accounts are with them and also I have a good rate which is 4.8% variable owing about 480 k. But more importantly because we use offset / redraw quite often and their online access is pretty good.

I have decided to purchase a new property and I am finding their agents a bit difficult to work with.

From what they are saying, I have roughly about 520k worth of equity on the house which I can use 80% of it as deposit for the new investment property.

I am planning to make sure that the new property does not cost any more than 850k including stamp duty and legal costs which I am also planning to borrow.

Now onto the questions.

They are saying that they can only tell me that the pre-approval will be at 5.2% rate and they cant give me the exact rate until I have actually purchased the property (regardless of whether it is fixed or variable). Is this correct?

They also cannot commit to evaluating my current house so they can determine the exact equity (unless if I paid for it to be evaluated) But they want to do this at the time of purchase of the new place, which makes things a bit uncertain in terms of the final amount of equity I can gain and if it can avoid mortgage insurance on the IP. Is there a way around this?


They are also saying that if I purchase the new property with the equity on the current property which I live in, and if I decide to upgrade my current property they will need a cash deposit as security for the investment property if I was to sell my current house. I wanted to understand that if I was to buy another property as our place of residence and then sell the place I live in currently, how will that work with regards to the investment property?

They are also saying I may need to pay stamp duty out of my pocket because they can only let me borrow the money if the house has settled and they have got possession of it which can delay the payment of stamp duty. Is that how it works? How can a bank pay stamp duty so the house can settle?

Finally, if the value of the houses drop in future, will they force people to take out mortgage insurance because the equity may no longer cover 80% of the value of the investment house while the investment house may also lose value.

If someone can explain how this works, I would appreciate it.

 

[Jamie M]

Hiya

The general structure is to access enough funds in the current property to cover the 20% deposit and costs on the next. You then take out an 80% loan against the next property.

They will be able to get a rate discount approved once you go for "formal" approval - but I don't understand the whole 5.2% rate right now. That doesn't make sense.

They can value your current home now - the banker/broker is just being lazy.

Sounds like they're making a mess of this - best to get pro help.

Cheers

Jamie

 

[Rolf Latham]

All your business and personal accounts......

I know we are all busy with out businesses etc and it's common practice for this to be so.

Just think for one minute about what control and oversight you are giving your mortgagee for your home and ip.

It's not best practice to have your transaction accounts with your business lender, nor to have your home and pis with that same lender.

I know it won't happen to me, sadly it does- all the time, that the lender winds you up earlier than one could have extended. And al the negatives that this comes with.

Split banking of this sort is the first pillar of any for of asset protection

None of the above may apply to the op. But it's important that people know such simple but not obvious stuff


Ta
Rolf

 

[Terry_w]

I am currently with CBA because all of our business and personal accounts are with them

This is generally a very bad idea!

Sounds like you are getting exploited by your CBA people and this is going to cost you dearly in terms of poor legal structure, lost tax claims and bad loan set ups.

 

[Greg Reid]

Tenex,
It sounds a like like you are dealing with the commercial/business banking section of CBA. They work for CBA, not you, so will do whatever they can to protect the banks interest.
Based on what you are saying, your current PPOR is worth $1m, a loan of $480k and equity of $520k

If you purchase an IP using CBA (why you would buy an IP worth $850k is another question) and used your existing PPOR as cross security to enable you to borrow the full amount required, then they are within their rights if you sell your PPOR you may be required to reduce your IP loan down to 80% or incur LMI at that time.

This is one of the risks of cross guarantee. As to your other points, I do not know why they would require you to pay cash for the stamp duty of the IP based on your equity above. As to not being able to do a valuation, that is just ridiculous, other than a valuation is generally only good for three months. It would be highly unusual that a bank would revalue a property if we had a downturn and require further funds or LMI. As long as you are making the payments, they tend to be set and forget type loans. You should be able to get a rate price upfront, depending on the underlying RBA rate.

I would suggest if you want to stay with CBA (I agree with Rolf it is better to keep business and personal banking separate) then simply refinance your PPOR to an 80% and establish a separate LOC or IO term loan to be used as settlement funds for an IP financed with another lender. Terry said you are being exploited by CBA and I agree fully, you are not getting good service. Go find a knowledgeable broker who can assist and guide you to achieve your goals.

 

[Tenex]

Thank you everyone, there are a few good points above.

Because I am new to the idea of investment property (or using equity for that matter), I need as much information as I can get .

The reason for using CBA is that we have some transfers between the business and the offset account of the loan. We used to have our home loan with a separate provider (perpetual via aussie homeloans) which was found by a broker. But we experienced so many problems with using their offset account and transferring money back into the business that we decided to move everything to CBA.

In a nutshell we are doing it for the ease of money transfer between accounts and if everything is in one place you can keep track of it more easily.

What you have said also makes perfect sense. What I might do is use CBA to buy this investment property and once everything has settles, I refinance both houses with a different provider while keeping our personal and business accounts with CBA.

 

[Tenex]

Tenex,
why you would buy an IP worth $850k is another question

That is an interesting point.

The idea is to buy a property that needs some renovations, either renovate and lease for a year OR lease for one year (if it can be leased in its current condition) then renovate just before selling.

I dont think I can find anything under 850k in Sydney suburbs that can attract the right audience who will pay for renovations but I am all ears if you have any suggestions.

 

[Rolf Latham]

What you have said also makes perfect sense. What I might do is use CBA to buy this investment property and once everything has settles, I refinance both houses with a different provider while keeping our personal and business accounts with CBA.

id suggest that if you have more than 3 weeks to settlement to do it the right way now for the IP.

For busy busy business people, temporary quickly comes permanent.

if you dont have the 3 wks or so to do the job properly then I guess later is better than never.

ta
rolf

 

[Terry_w]

In a nutshell we are doing it for the ease of money transfer between accounts and if everything is in one place you can keep track of it more easily.

.

Hope you are not transferring between a company and private account willy nilly! This could lead to mess on several levels.