Restructuring bank loan to reduce risk of losing home (separating IP from Home loan)

[JJ Lee]

Does this sound like a reasonable deal?

Scenario: the loan on an apartment as an IP was borrowed against the equity in our home.

Wife finds a broker who says that there is a risk of losing the home if we (for some unforeseen reason in the future) cannot pay off the interest on the IP, ie. the bank can chose to take ownership of either the apartment or the home.

Broker says he can restructure the loan so that only $60 000 of the equity in the home is used, rather than the whole lot. The broker gets commission from the bank, nothing else changes, ie no change in ongoing fees or interest payments. In short no change in the loan product or the withdraw capacity.

This sounds like a good deal, the bank never told us of this kind of scenario (why would they?) but is there anything we are missing that might catch us out later?

Would love to hear your thoughts/experiences with this kind of thing. Hope I've explained it enough to make sense.

 

[Jamie M]

Sounds like your current loans are crossed and he/she is going to uncross.

Are you planning on buying more IPs? If so, it wouldn't be a bad idea to tidy up the structure now.

Cheers

Jamie

 

[Terry_w]

Its always a good idea to stop and consider worse case scenarios such as what would happen if you could not pay.

Good idea to generally uncross if pssible i think.

 

[Rolf Latham]

Does this sound like a reasonable deal?

Scenario: the loan on an apartment as an IP was borrowed against the equity in our home.

Wife finds a broker who says that there is a risk of losing the home if we (for some unforeseen reason in the future) cannot pay off the interest on the IP, ie. the bank can chose to take ownership of either the apartment or the home.

Broker says he can restructure the loan so that only $60 000 of the equity in the home is used, rather than the whole lot. The broker gets commission from the bank, nothing else changes, ie no change in ongoing fees or interest payments. In short no change in the loan product or the withdraw capacity.

This sounds like a good deal, the bank never told us of this kind of scenario (why would they?) but is there anything we are missing that might catch us out later?

Would love to hear your thoughts/experiences with this kind of thing. Hope I've explained it enough to make sense.

Hiya

Most branchies do things in the way they have been trained...........and that is to extract maximum contribution from the borrower (ie lock down max security).

Most brokers are also trained this way.

Many borrowers dont think its an issue, either.

The biggest hassle you may face is not if you default............, the more immediate risk is if you sell off ONE of the properties and the value if the retained property has plummeted and is "under water".

Where the borrower thinks they will get X on sale, the lender keeps X and possibly asks for y.

Xcoll is rarely of benefit to the borrower, and so breaking it up is a good plan, even at some cost.

ta

rolf

 

[Aaron_C]

Your broker sounds like he's doing a good job for you to split up the securities. It costs a bit more in application fees though so you need to weigh it up yourself.

 

[JJ Lee]

Thanks for the thoughts.. I think it's time we uncrossed the two properties, which should be possible in our current situation.

Cheers

 

[Gazgc]

Hi JJ Lee, just looking at your post, a couple of things to consider.

1. If you do a restructure with the same lender you will still have an All Monies Clause and if the worst happens the lender may still come after your OO if not enough equity in the INV if they sold it.

2. If you plan to do more investing, depending on the equity you have it may pay to do a 95% LVR loan to maintain as much equity in your O/O as possible.

Many brokers seem to be affraid of LMI but miss the big picture when it comes to future goals of there clients, if you want to keep on investing maintaining equity is very important, keep the loan on your I/P and O/O with different funders. My advise, make sure your broker understands your future goals and can come up with a few options for you. Post up what he advises you to do I would interested to see!

If not much is changing and you have said this is a restructure then I think you should be looking at doing a refi on the I/P and seperating the two funders. It will cost a few $$ to start with but worth it in the long run.