SHould I stick with Big 4 bank?

[Hosko]

My first question is, "Should I stay with my current Big 4 bank?" We are on the professional package, pay most things on credit card, pay them off each month and have a PPOR loan ($230k) and a single IP loan ($380k).
Current discount is 1.05% off variable rate, pro package costs $395/year and no other bank fees.
We will be looking to get a further IP shortly. What are the downsides of getting a third loan through them? Each loan is <80% LVR
Second question is, "If I roll my margin loan across to them, will there be a further discount on the rate?"
Thanks for your feedback

 

[Shahin_Afarin]

Is it Westpac?

Regards

Shahin

 

[devank]

Personally I would be comfortable with budget versions of big 4 banks + AMP as well. I'm sure brokers would know better
However they may get different commission from different banks though

 

[Rolf Latham]

its a good product at a good price

Unless you have a preference to go regional or second tier for an emotional reason

ta
rolf

 

[Ausprop]

don't touch the 2nd tier rogues, the govt can't even control the big 4

 

[Hosko]

Thanks for your valued opinions so far.
Are there any downsides or disadvatages to staying with a single lender? At this stage I'm being cautious and saving 20% deposit and each loan will be separate from the other. When we get our next property it will be the 3rd in 3 years
I realise that as we become more aggresive and acquire at a faster rate that this won't be sustainable but it works for now while waiting for CG.
Thanks

 

[Peter_Tersteeg]

3 or even 4 properties with a single bank at 80% generally doesn't cause too many issues. Your overall strategy does appear to be fairly conservative and for a while to come I don't see that you'll have any problems getting finance (assuming affordability continues to work). Your discounts are also quite good.

At some point the risk of 'over exposure' does start to become a concern even if all your LVRs are 80% or better. Do you really want a single lender to have complete control of your finances? Chances are you're a long way from that at the moment, but when you're getting towards the point of purchasing each property you should be revisiting the questions you're asking now.

You should also keep asking a few things with each purchase:

* How well does your existing lender service, and how close are you getting to their limit? Are you starting to stretch their risk tolerance levels? If they'll give you money for this deal, will the give you money for the next?
If they're okay this time, but the next deal will be tricky, perhaps it's time to diversify.

* Is your debt level getting to the point where they've got too much control? Would you have more flexibility in the future if you were dealing with more than one lender?
This one's a very difficult question to gauge, but keep in mind that lenders will be really friendly until one day they decide that they won't be any more. At this point you've got a real problem. You need to address this problem before it becomes a problem.

 

[Terry_w]

Are there any downsides or disadvatages to staying with a single lender?

Yes. see http://somersoft.com/forums/showthread.php?t=85065
Though with residential it is no where near as bad.

 

[Terry_w]

At this stage I'm being cautious and saving 20% deposit and each loan will be separate from the other.

I hope you mean you are paying down the non-deductible PPOR loan by 20% and reborrowing?

Otherwise you are throwing thousands of dollars away each year.

 

[Hosko]

Thanks Terry. Putting into off-set against PPOR. Would you put this into a similar category to reborrowing?

 

[Terry_w]

Thanks Terry. Putting into off-set against PPOR. Would you put this into a similar category to reborrowing?

Very good to put money in the offset but what about when you want to make a deposit on the next investment property - how do you do that?

 

[Spectre]

margin loan savings is basically your rate savings which is usually what 2-3%..?
eats your equity as well so dont double dip on your calcs
depending on lvr you may be better to keep the margin loan and then avoid lmi...?

noting rate is sometimes a second consideration... flexability and opportunity cost often come ahead

 

[Hosko]

Terry, the deposit comes out of the offset account. I realise this is not fully tax effective, but I figure that I am missing out with a small portion of what is available. This sits OK with me at the minute because we are talking about a smallish $$$ value, avoids LMI and fits in with my conservative nature towards property for the time being. This will be ramped up and we will become more aggresive over the next 5 years.
We are much more aggresive in the share selections that are made but got burnt big time in the GFC and still trying to recover so want to approach property in a more conservative manner.
Does this make sense to you

 

[Hosko]

Yes Shahin, it is WBC.
Why do you ask?

 

[Terry_w]

Terry, the deposit comes out of the offset account. I realise this is not fully tax effective, but I figure that I am missing out with a small portion of what is available. This sits OK with me at the minute because we are talking about a smallish $$$ value, avoids LMI and fits in with my conservative nature towards property for the time being. This will be ramped up and we will become more aggresive over the next 5 years.
We are much more aggresive in the share selections that are made but got burnt big time in the GFC and still trying to recover so want to approach property in a more conservative manner.
Does this make sense to you

Hosko, that could be costing you a lot in terms of missed out tax deductions.

If you are buying $300,000 properties then that is around $60,000 in deposit and say $10,000 in costs you would be removing from the offset.

$70k in offset means you are saving 6% (or whatever your home loan rate is ) x $70,000 (or the full amount you have in there) = $3,600 pa.

So if you were to remove $70k from the offset you would end up paying $3,600 pa more in interest on the non deductible home loan. Every year. If you were on the top tax rate you could be saving $1674 in tax every year. This amount could be coming off your deductible debt. Think that this is for one property and think of the compound effect over 10 years or 30 years. You could have paid your nondeductible home loan off probably 10 years quicker.

And this is just for 1 property.

There is no reason to do it this way and no need to do anything complex to fix next time.

What you do is pay the money off the home loan first and then reborrow it.

Ideally
1. Separate loan split
or at the very least
2. pay into the loan and redraw it
(less than ideal as the full effects won't be achieved and you will end up with a mixed loan). Care must be taken when redrawing too.

 

[Hosko]

Hosko, that could be costing you a lot in terms of missed out tax deductions.

If you are buying $300,000 properties then that is around $60,000 in deposit and say $10,000 in costs you would be removing from the offset.

$70k in offset means you are saving 6% (or whatever your home loan rate is ) x $70,000 (or the full amount you have in there) = $3,600 pa.

So if you were to remove $70k from the offset you would end up paying $3,600 pa more in interest on the non deductible home loan. Every year. If you were on the top tax rate you could be saving $1674 in tax every year. This amount could be coming off your deductible debt. Think that this is for one property and think of the compound effect over 10 years or 30 years. You could have paid your nondeductible home loan off probably 10 years quicker.

And this is just for 1 property.

There is no reason to do it this way and no need to do anything complex to fix next time.

What you do is pay the money off the home loan first and then reborrow it.

Ideally
1. Separate loan split
or at the very least
2. pay into the loan and redraw it
(less than ideal as the full effects won't be achieved and you will end up with a mixed loan). Care must be taken when redrawing too.

Thanks Terry,
I get where this is coming from and maybe I understand it.
2 questions.
-What are the implications down the track as this is not long term PPOR and we may rent it out? Not a lot of CG in this area, not a lot of CG tax free so current thinking is to get it rented out and somebody else can pay down this mortgage.
-Would I have to pay LMI when I increased the loan on PPOR when I purchase next IP and LVR goes above 80%?
Thanks

 

[Terry_w]

Thanks Terry,
I get where this is coming from and maybe I understand it.
2 questions.
-What are the implications down the track as this is not long term PPOR and we may rent it out? Not a lot of CG in this area, not a lot of CG tax free so current thinking is to get it rented out and somebody else can pay down this mortgage.
-Would I have to pay LMI when I increased the loan on PPOR when I purchase next IP and LVR goes above 80%?
Thanks

Having it become an IP in future doesn't really change anything. Any loan associated with the purchase of this property would generally be deductible. Any increases associated with the purchase of other property would be separate even if secured on this property.

CGT is not relevant for interest either. Maybe if there is no capital growth it would be better to sell this and put the funds to better use or to establish another property as your main residence.

If you take a loan over 80% LVR generally LMI is payable. If you borrow more than 80% on the next IP and secured against that IP only then LMI would be payable. But you can borrow 105% without LMI by taking 80% from the new property and the remainder from a loan secured on the PPOR>