re-draw accounts with no doc lenders - safe?

[Pete]

I have a holding company ATF some discretionary trusts. Some trusts have a no doc loan for investment properties: the loans have re-draw facilities.

I personally have a large amount of spare cash - that is it is mine personally, not the trust's.

Earlier in the year the spare funds were lent to the trusts and sat in re-draw accounts against the no doc loans. It saved on interest payable.

When things looked shaky, I withdrew the funds and put them into a personal online savings account with my regular bank - unrelated to the lenders for the no doc loans.

No doc lenders RAMS/RHG & Ezy Mortgage. One of the Ezy Mortgage loans is funded (? I believe) by Macquarie, other by Pertpetual Trustee Company.

I withdrew the money 'cause I was concerned about the no doc funders having some difficulties and my spare cash not being readily available, or not even being available at all.

I comfortably meet all loan payments without drawing on the spare funds and they are there as a buffer.

Now I earn a reasonable amount of interest on the funds in my online account but obviously at a lower interest rate than I am charged on the loans. From a purely income perspective, it would be better to return the spare funds to the redraw accounts.

However, I am unsure how safe the funds are in the redraw accounts...

Should I be concerned somehow about the security of the funds in the redraw accounts? If so, I have no hesitation to leave the funds where they are. Then again, if my fears are unreasonable, I am happy to return the spare funds to the redraw accounts.

Should I be concerned about returning the cash to the no doc loan redraw accounts?

I would appreciate comments.

Regards,

 

[keithj]

Should I be concerned somehow about the security of the funds in the redraw accounts? If so, I have no hesitation to leave the funds where they are. Then again, if my fears are unreasonable, I am happy to return the spare funds to the redraw accounts.

I'd continue to be concerned. If there is a 1% chance of your redraw facility being frozen then IMO that's to high a risk. Congrats on your good risk management.

Maybe put 10% in the Maq funded one & 10% in the Perpetual funded one, and keep 80% safely elsewhere. If one of the 2 freezes the $$$ then withdraw the other immediately. That way you do save a bit of interest & are guaranteed access to 90% of your cash.

 

[Propertunity]

Should I be concerned about returning the cash to the no doc loan redraw accounts?

Pete, like keithj I would still be concerned enough not to return it to the lo-doc redraw accounts at the present time.....maybe for all of 2009 at least until this GFC thing washes thru - and its nowhere near that yet.

 

[Pete]

Thanks, guys. That is good enough for me. Funds will stay where they are.

It will be in August this year that I can refinance the first no doc loan without break costs. So at that time I will start converting to 60% LVR loans with a big 4 bank or similar.

I guess my biggest 'problem' has been not knowing much about the risk of the funds being lost or tied up. I don't know if it is an almost nil chance or a real possibility, even if only 1 in 1000 or whatever. With any slight chance, I don't want my funds at risk.

Cheers,

 

[Pete]

I just realised I started this thread in the wrong sub-forum. Should be property finance not accounting+tax. Apologies, Pete