Refinance opinion

[cuteduck]

I am thinking about re-finance my current PPOR and IPs with the aim to extract the equity and to lower my current home loan rate (4.53%)

This is the suggestion from the MB

<<snippet>>
As per our discussion, the structure is as follows XXXXXX

Facility 1 - PPOR - Wife's name on title
Borrower <<Me + Wife>>
CBA Valex Security Valuation $865k
Loan Amount $581k


Facility 2 - IP 1
Borrower << Family Trust with company trustee>>
CBA Valex Security Valuation $620k
Loan Amount $250k
Rental income - A$ 610/week

Facility 3 - IP 2
Borrower << Family Trust with personal trustee>>
CBA Valex Security Valuation $737k
Loan Amount $361k
Rental income - A$ 610/week


Facility 4 - for future IPs
Borrower TBA - Personal name or in one of the above trusts for
future investment purposes

The structure after refinance: Security Address Cross-Collateralised security pool - IP1, IP2 & PPOR.

Security Valuation remaining equity - up to 80% LVR of security pool after above debts have been deducted Loan Amount Circa $581k

Total Borrowing $ 1,777k @ 80% LVR - @ 4.35% CBA Wealth Package


I told the MB NOT to cross-collaterised the loans. However the comment
was "I gave some consideration to the idea of not X-collateralising the 3 properties and came the conclusion that 1 facility for future investment was better than 3 separate facilities.

Is that routinely done and best way of refinance??

 

[Shahin_Afarin]

Not going to sugar coat with extra frosting on top.

This is a terrible structure. You can search on the forum the million threads about why cross securitisation is bad for you and how it limits you from growing your portfolio.

I think the broker isn't intentionally cross securitising the loans. I think its a combination of a lack of knowledge as to why crossing is terrible and its easier for him/her to submit one application rather than multiple applications.

I just wonder what else they may have suggested to you which is a no/no.

Do you have an offset linked to the PPOR loan? If so, are all income types (salary, rental income, etc) going into this offset?

Are the loans IO or P&I?

 

[Rolf Latham]

My 2 bobs worth

1. Concentration risk............thats an awful lot of lending with the one lender

2. Personal and corporate trustee lending with the one bank isnt an ideal asset protection idea.

Sha has already addressed the xcoll thing, here is a post of mine from near 11 years ago........... mostly still applies today, because fundamentals are simply that.

http://somersoft.com/forums/showpost.php?p=120656&postcount=6

ta
rolf

 

[Terry_w]

Stay away from that broker.

 

[Redom]

Echo the above - stay away or you may end up tangling yourself up in future.

May also need to consider your ability to release equity out with CBA in future. Holding circa 1.8mill of debt with one lender may get you stuck if you need to tap into deposits further down the track. Could be worth exploring the benefits of splitting it across two institutions (current loans vs future loans). This will depend on your serviceability, future potential serviceability and goals. If your at the extremes of CBA servicing, may be worth planning it out.

 

[cuteduck]

Not going to sugar coat with extra frosting on top.

This is a terrible structure. You can search on the forum the million threads about why cross securitisation is bad for you and how it limits you from growing your portfolio.

I think the broker isn't intentionally cross securitising the loans. I think its a combination of a lack of knowledge as to why crossing is terrible and its easier for him/her to submit one application rather than multiple applications.

I just wonder what else they may have suggested to you which is a no/no.

Do you have an offset linked to the PPOR loan? If so, are all income types (salary, rental income, etc) going into this offset?

Are the loans IO or P&I?

Thanks for the input. I did specifically told MB not to cross collaterised the loan, but the proposal is no difference

My current PPOR has 100% Offset I/O with the $loan amount = $ offset amount, hence paying $0 interest. I was thinking about discharging the loan from the asset protection perspective (suggested by my accountant).

 

[cuteduck]

My 2 bobs worth

1. Concentration risk............thats an awful lot of lending with the one lender

2. Personal and corporate trustee lending with the one bank isnt an ideal asset protection idea.

Sha has already addressed the xcoll thing, here is a post of mine from near 11 years ago........... mostly still applies today, because fundamentals are simply that.

http://somersoft.com/forums/showpost.php?p=120656&postcount=6

ta
rolf

Hi Rolf,
1. Thanks for the advice. I will consider another institution for new IPs, however my bargaining power will be less in terms of negotiation of discounted interest rate.

2. I am thinking about discharging my PPOR's mortagage. I agree that defeat the purpose of asset protection.

 

[Terry_w]

Thanks for the input. I did specifically told MB not to cross collaterised the loan, but the proposal is no difference

My current PPOR has 100% Offset I/O with the $loan amount = $ offset amount, hence paying $0 interest. I was thinking about discharging the loan from the asset protection perspective (suggested by my accountant).

It might be better asset protection to keep the loan as is. Cash readily available and a mortgage may deter creditors from taking legal action, to an extent.

 

[Peter_Tersteeg]

I told the MB NOT to cross-collaterised the loans. However the comment
was "I gave some consideration to the idea of not X-collateralising the 3 properties and came the conclusion that 1 facility for future investment was better than 3 separate facilities.

Is that routinely done and best way of refinance??

That's nice, personally though I have a different opinion which is cross collateralising will only do you harm in the long term.

What justification was given for the broker's conclusion? There's dozens of really good reasons why you shouldn't cross collateralise but I can only thing of a handful in favor of it. None of them would appear to apply to this scenario.

 

[cuteduck]

Echo the above - stay away or you may end up tangling yourself up in future.

May also need to consider your ability to release equity out with CBA in future. Holding circa 1.8mill of debt with one lender may get you stuck if you need to tap into deposits further down the track. Could be worth exploring the benefits of splitting it across two institutions (current loans vs future loans). This will depend on your serviceability, future potential serviceability and goals. If your at the extremes of CBA servicing, may be worth planning it out.

Hi Redom,

When I initially set-up my loan with ANZ bank, I have each individual loan against each property with 20% deposit, hence No cross-securitising.

My purpose of refinancing to CBA is to release some equity and to have better rates (currently paying 4.53% vs. 4.35%), however ANZ has been waiving the Breakfree package fee

I might consider CBA for future loans, however my bargaining power will be less with small loan.

 

[cuteduck]

That's nice, personally though I have a different opinion which is cross collateralising will only do you harm in the long term.

What justification was given for the broker's conclusion? There's dozens of really good reasons why you shouldn't cross collateralise but I can only thing of a handful in favor of it. None of them would appear to apply to this scenario.

Hi Peter

I haven't spoken to him yet since the last email 1 week ago. I dont know the rationale behind of combining my 3 stand loans into 1.
I told him the structure I want

PPOR with 100% Offset (80% LVR)
IP1 with 100% Offset or LOC of equity at 80%LVR)
IP2 with 100% Offset or LOC of equity at 80% LVR)


I choose to refinance to CBA due to 4.35% interest rate and can have
multiple offset accounts

 

[Peter_Tersteeg]

Didi you actually try to negotiate with ANZ on rates? I agree that the CBA has a better offset account solution, but there's a good chance that a refinance from one lender to another is unnecessary.

Cross collateralising is a serious mistake. If this is what anyone recommends, they need to have a really good reason for it and to be able to explain the consequences and alternatives. If someone can't do this adequately, you shouldn't be taking their advice.

In the circumstances you've described, there really is no reason to cross collateralise and plenty of reasons not to, Rolf's link outlines just a few. That said, the structure you've proposed probably isn't quite ideal either (although it is headed in the right direction).

If the entire equity release is going to be used for investing, don't simply increase your current PPOR loan to 80% of the property value. Access that portion of the equity as a separate equity loan. If you don't, you'll mix tax deductible and non deductible debt which will mean you loose tax deductions.

If your new CBA loans haven't settled yet, don't proceed, start again with some better advice.

 

[Terry_w]

Facility 1 - PPOR - Wife's name on title
Borrower <<Me + Wife>>

Just noticed this.

You should not be on the loan if you can avoid it, for 2 main reasons

1. Asset protection
2. serviceability.

 

[cuteduck]

Just noticed this.

You should not be on the loan if you can avoid it, for 2 main reasons

1. Asset protection
2. serviceability.

Hi Terry

Thanks for your input
I am the main income earner and my wife has minimal income (due toddler)
The tile of PPOR is solely under my wife's name due to my high risk occupation. Hence, I was thinking about discharging the mortgage.

 

[Terry_w]

Hi Terry

Thanks for your input
I am the main income earner and my wife has minimal income (due toddler)
The tile of PPOR is solely under my wife's name due to my high risk occupation. Hence, I was thinking about discharging the mortgage.

There may be little choice then.

Did you know that even though the title is in her name half would probably be up for grabs if you were to go bankrupt?

 

[cuteduck]

Didi you actually try to negotiate with ANZ on rates? I agree that the CBA has a better offset account solution, but there's a good chance that a refinance from one lender to another is unnecessary.

Cross collateralising is a serious mistake. If this is what anyone recommends, they need to have a really good reason for it and to be able to explain the consequences and alternatives. If someone can't do this adequately, you shouldn't be taking their advice.

In the circumstances you've described, there really is no reason to cross collateralise and plenty of reasons not to, Rolf's link outlines just a few. That said, the structure you've proposed probably isn't quite ideal either (although it is headed in the right direction).

If the entire equity release is going to be used for investing, don't simply increase your current PPOR loan to 80% of the property value. Access that portion of the equity as a separate equity loan. If you don't, you'll mix tax deductible and non deductible debt which will mean you loose tax deductions.

If your new CBA loans haven't settled yet, don't proceed, start again with some better advice.

Hi Peter,

Sorry, I was unclear about my PPOR (midnight reply). I normally do ask for a separate LOC account if I am extracting equity from my PPOR to buy IPs. I tried not to use my PPOR's equity, in fact, I am thinking about discharging the mortgage from the bank. I prefer to use other IP's equity due to avoid tax contamination and accounting headache.

No, I haven't moved to CBA yet as the current proposal does not make any sense.

I tried to negotiate with them last year (through retention team) and was given 1.1% discount + free package fee.

 

[Peter_Tersteeg]

That's good news (structure wise).

Go back to the ANZ (or the broker set up those loans). Request top ups on the loans in the appropriate structures which I think you understand. I'm reasonably confident that ANZ would do a discount of about 1.2%, possibly more at the moment; especially if they thought they're going to loose you.

One argument for moving is diversifying your lending, but this comes at the cost of missing out on cheaper rates. Depending on your income circumstances you'll probably find that ANZ is unwilling to do equity releases sooner than other lenders, which could be a problem either now or in the future. The good news is that if you're leveraged to 80% or less, moving isn't entirely difficult. The caveat on this of course is it assumes nothing changes which might make it harder to refinance later if you have to (and things do have a strange tendency to change).

 

[Marty McDonald]

Id recommend you go with a 2nd lender for the equity pull and new IP loan and leave all uncrossed. You may lose some on rate negotiation but that is not that important in greater scheme of things.

 

[cuteduck]

There may be little choice then.

Did you know that even though the title is in her name half would probably be up for grabs if you were to go bankrupt?

Terry, it would make it very difficult for them to touch the asset unless I tried to hide from the creditor from transferring the property post "event" (I am talking about medico-legal cases end up in the court for compensation)

 

[cuteduck]

Id recommend you go with a 2nd lender for the equity pull and new IP loan and leave all uncrossed. You may lose some on rate negotiation but that is not that important in greater scheme of things.

That is 2nd option in my mind to transfer Family trust's loanwith CBA, however, separating personal and trust asset. However, the interest rates may not be as sharp as 4.35% + extra wealth package fee.

I was trying to maximise to 5 loans under ANZ Breakfree package before considering diversification to other lender.