Selling to upgrade x-collateralised PPOR

[Lukey13]

This might be more of a question for the mortgage brokers out there...

I would like to sell my current PPOR so as to upgrade to another. However, currently I have another loan against it for my recently purchased IP.

My question (which probably has a very simple answer) is how do I go about this in terms of loan structure and process?

Further details of my scenario are:
PPOR - valued at $430K - current mortgage $240K + $79K IP loan secured against PPOR
IP - valued at $340K - current mortgage $254K
Prospective new PPOR will cost approximately $550K

Will this be as simple (not!) as teeing up the settlement of the new PPOR purchase with the old PPOR sale so that the $79K IP loan can be immediately transferred and secured against the new PPOR?

Or can I sell the current PPOR first, use the proceeds to "temporarily" pay out the IP loan, and then upon purchase of the new PPOR draw back that loan and secure it against the new PPOR. Only problem is I don't have an offset account for any of my loans due to fixed rates.

Also, if I really needed to, I could have the IP revalued and then borrow some of the $79K debt against it's increased value up to 80%.

Any help would be kindly appreciated.

 

[Rolf Latham]

Hiya

The back to back settlement idea is probably the easiest and best BUT, may not work with your vendors and buyers ideas.

If you extinguish the 79 k loan via the sale and repayment of the PPOR, that may cause some tax issues, if you then want to reinstate the loan later,since the purpose has changed.

A sure way, but a little expensive is to take an equity pull on the IP to 95 % of the hopeful 350 k value, thus raising around 78 to 79 k.

Use this to repay the loan secured on the PPOR, then you can do what you like with the settlement of your existing and the new property.

Another method may involve a form of bridge finance

ta
rolf

 

[Lukey13]

Hey Rolf

Thanks for your reply.

From your advice it would seem I have a few different options (which allow me to retain deductibility of interest):

1) Go for a back-to-back settlement - cons being that this may be difficult to pull off with vendors
2) Draw equity from IP to 95% to pay off $79K - cons being the substantial costs of LMI
3) Attempt some kind of "bridging finance"

Some further questions for everyone:

1) How would the "bridging finance" work, and what might be the likely costs involved?
2) Am I correct in assuming that bridging finance will allow me to retain deductibility of interest?
3) Does the fact that my $79K IP loan secured against the PPOR is fixed for 5 years affect anything?

Thanks again.

 

[Spectre]

You might be able to do a term deposit as security for the 79k until the new place settles as well then secure it against the new PPR.

I'm working here very quickly so hope my figures are right... feel free to pull me up.

If you repay your loans (not including the $79k)
430-240 = 190k deposit.... less the 79k as coll security thru a td (i.e. if you dont repay it) leaves about 111k

buying for 550k, 80% = 440k
550-440 = 110k
less legals and stamp duty etc say 100k (being generous)

Point being it could be you're going to pay MI on the new property depending who you lend thru anyway so you might be better to pay it on the investment side than the owner occupied side so you can avoid it for your non deductable debt.

 

[Rolf Latham]

Hiya

The fixed rate may be a nice cheap rate, so doing the port or the TD ( as described by Richard l ) may be a better long term solution if all the vals etc stack up. TD as security used to be only ok for short term stuff since the TD rates were much lower than the mortgage rate. Here though you may have an edge with the fixed product

Depending on how skinny things get, an 85 % no lmi deal with someone like wesuck may get you out of the PPOR lmi pickle, and the lmi on the 95 % refi will bit for the 79 k would be depreciable over 5 yearstoo.

Much depends on the final numbers...........what lender are u with pls ?


ta
rolf

 

[Lukey13]

Hiya

The fixed rate may be a nice cheap rate, so doing the port or the TD ( as described by Richard l ) may be a better long term solution if all the vals etc stack up. TD as security used to be only ok for short term stuff since the TD rates were much lower than the mortgage rate. Here though you may have an edge with the fixed product

Depending on how skinny things get, an 85 % no lmi deal with someone like wesuck may get you out of the PPOR lmi pickle, and the lmi on the 95 % refi will bit for the 79 k would be depreciable over 5 yearstoo.

Much depends on the final numbers...........what lender are u with pls ?


ta
rolf

Hey Rolf

All three of my loans are currently with Suncorp: $254K and $79K are fixed for nearly another 5 years @ 8.69% (not a good rate, but a safety mechanism) while the $240K PPOR loan is fixed for 1 more year @ 6.55%

I'm a little confused about the term deposit suggestion. Would it work like this: Sell the PPOR, use proceeds to pay out $240K loan and then rather than pay out the $79K loan transfer the security for it to a $79K term deposit, since I won't be able to secure it against the new PPOR as it won't be settled and available for several days?

Would the only purpose of this be to solve the problem of the gap between settlement of the old and new PPORs which need to be used as security for the $79K loan?

Also, I will be close to LMI territory on the new PPOR if I don't wait for sufficient growth to occur.... so what's kind of loan with "wesuck" actually offers 85% LVR without LMI?