Structuring our finances

Have just stumbled across this forum in the last couple days and what a great site!

We're currently in knowledge acquisition/ planning stage to be able to act quickly when then time is right for our next purchase.

Am seeking advice from the experienced people on how we should structure our finances.

We are currently renting and construction is in progress for our PPOR (due for completion Sept/ Oct 2015) which is at ~75% LVR (on variable rates). PPOR has two offset accounts.

Currently also holding 2 IPs.
IP1: 70% LVR (50% variable/ 50% fixed until December 2015)
IP2: 80% LVR (Fixed until November 2015)

All loans are with CBA at the moment with rates ranging from 4.7% for variable rate loans and up to 5.39% for fixed rate loans. None of them have LMI.

From the forums, it seems some lenders are doing rates at 4.6% or lower at the moment. Do feel that the fixed rate loans are holding us back from enjoying the the low rate environment!

What are suggestions to get our borrowings/ refinancing/ equity in order for our next purchase?

Would like to keep things simple without cross collateralising or tax deduction issues?

Is it wise to stay with CBA or start diversifying with other lenders? (Service with CBA has been great so far other than my mistake partially fixing the loans)

We're currently in accumulation stage and want to continue acquiring IPs. The 2IPs above was just a standard buy and hold. It seems I'm following the natural progression path and for our next project, am wanting to look at a buy, reno and release equity.

Thanks!
 
Hi En_,

On some of the your questions:

Cross collateralising - definitely don't cross collatreralise. A good thread here explaining the dangers of this:

http://somersoft.com/forums/showthread.php?t=105809

CBA or start diversifying with other lenders - diversifying is a good strategy as you avoid concentration risk with one bank. Speak to an experienced broker on best way forward.

Buy, reno and release equity - this can work, provided the numbers are there and can speed up your accumulation phase.
 
Heya,

Whats your overall loan amount? 4.7% isnt too bad, if your up past the $1mill mark, may be able to go down to 4.6x%.

Starting of at CBA is a pretty good play - its a decent lender to begin the accumulation journey with.

In terms of switching lenders, also comes down to your overall loan amount with CBA, as well as your income/future goals.

Given you've got a few loans with CBA already, it may be time to start thinking at what impact it has on your ability to release equity in the future. If your serviceability is strong, may not need to switch out yet.

Its difficult to say anything more precisely without more info on your overall loan size/serviceability profile.

Definitely avoid x-coll.

Cheers,
Redom
 
Hi En

cant add much to whats been said

4.6 and CBA is unlikley

moving for .10 is generally not smart if you are a portfolio builder esp if LMI and fixed rates are involved on exit

Availability of funds on your terms s MUCH MUCH more valuable to you on an NPV basis than a few points here and there.

ta
rolf
 
Hi en_, firstly, good work, buddy! Pat yourself on the back! Secondly, here's what I think you should do. Talk to a broker.

There are several good mortgage brokers on here. In your position, I would speak to the following and make a decision as to who you would like to work with:

Rolf Latham (www.asapfinancial.com.au)
Corey Batt (www.xlfinancial.com.au)
Kinnon Bell (www.kineticfunding.com.au)
Peter Tersteeg (www.sagelending.com.au)

They are all great brokers and super rad dudes/dudettes, with proven track records and all very knowledgeable.
 
Hiya

I'd be holding off doing anything until those fixed rates expire - switching now could result in expensive break costs.

Cheers

Jamie
 
Thanks for the good advise here.

Mr Fabulous - that's a great idea!

Redom - Loans are over the $1M mark.

Rolf, do you mind elaborating further on the points below and some further questions - some might be silly?

There are no LMI in our loans and be smart about waiting until the fixed rates period expire at the end of this year.

"moving for .10 is generally not smart if you are a portfolio builder esp if LMI and fixed rates are involved on exit

Availability of funds on your terms s MUCH MUCH more valuable to you on an NPV basis than a few points here and there."

If we were to move between lenders to get better rates, does that impact our future loans with other vendors? i.e. if we moved from CBA to Bank B and eventually want to move back to CBA, does CBA dislike that?

Might be a silly question, but what is the difference between a LOC and a SVR loan? (I see these terms being used frequently when discussing top up loans)

From a risk management perspective, is a 6 months cashflow buffer (assuming all properties are untenanted and covers own household expenses) generally sufficient?

Thanks in advance!
 
I don't like LOC's because of their reviewable/renewable clauses. The difference between a LOC and term loan is that the bank can recall the LOC at any point in time.

This happened quite a bit with some of the lenders during the GFC. I prefer term loans for equity releases w/ linked offsets.

I wouldn't refinance (even though you haven't paid LMI) purely based on getting a cheaper rate. It may be worthwhile having strategic approach instead of a transactional approach.

Refinancing from one lender to another and then bank isn't an issue but the number of credit enquiries may be an issue.
 
Hi En_

Who currently looks after your finance with CBA? Is it arrange via a broker or banker. You mentioned that they have been excellent so far with their service, have you then had a discussion with them around your plans? If you have what have the said? If not why not have that discussion with them.

Rate... I won't even go into that, no point. You're getting a reasonable rate, can likely push for bit better rate each time. But rate will not make you money, being able to secure properties/investments will make you the $$$.

DO NOT X-COLL there is no need, keep away from this. If your current broker/banker has done this then they haven't given you great service IMO.

Diversification will depend on your overall financial situation, depending on your serviceability, funds available, how aggressive you plan to be (what LVR), how many properties you're going to buy.

As for what you should do now, I would be looking into releasing equity from your existing properies. 1IP is @ 70% so there is 10% available without LMI.

You really need to sit down with someone who you trust with your finances and discuss exactly what you want to do. You should be able to release equity easily enough with CBA for the next purchases.

Having someone know what they're doing will save you a good amount of $$$ you currently have funds in offset from your comments, what, where and how you use these funds can save you $$$

LOC is a NO from me from reasons already mentioned, the clauses aren't the best with them, you're charged higher rate in most cases and also pretty easy to mix the purpose of the funds.

Best of luck
 
6 mths buffer is nice to have

more to the point, do you have adequate and suitable income protection pls ?


ta
rolf

Hi Rolf,
Currently have income protection up to age 65 (2 months waiting period) with AMP for 60% of my salary.

Basically bought this after AMP (super provided by employer) suggested it's something that is good to have.

Do you think that is adequate and is that suitable?
 
I don't like LOC's because of their reviewable/renewable clauses. The difference between a LOC and term loan is that the bank can recall the LOC at any point in time.

This happened quite a bit with some of the lenders during the GFC. I prefer term loans for equity releases w/ linked offsets.

I wouldn't refinance (even though you haven't paid LMI) purely based on getting a cheaper rate. It may be worthwhile having strategic approach instead of a transactional approach.

Refinancing from one lender to another and then bank isn't an issue but the number of credit enquiries may be an issue.

Hi Shahin,
What constitutes a credit enquiry? Is it considered one if it's just a better rate request? or a top up with the same lender? or happens when we start shopping around for pre-approvals with multiple lenders?

Thanks!
 
Hi En_

Who currently looks after your finance with CBA? Is it arrange via a broker or banker. You mentioned that they have been excellent so far with their service, have you then had a discussion with them around your plans? If you have what have the said? If not why not have that discussion with them.

Rate... I won't even go into that, no point. You're getting a reasonable rate, can likely push for bit better rate each time. But rate will not make you money, being able to secure properties/investments will make you the $$$.

DO NOT X-COLL there is no need, keep away from this. If your current broker/banker has done this then they haven't given you great service IMO.

Diversification will depend on your overall financial situation, depending on your serviceability, funds available, how aggressive you plan to be (what LVR), how many properties you're going to buy.

As for what you should do now, I would be looking into releasing equity from your existing properies. 1IP is @ 70% so there is 10% available without LMI.

You really need to sit down with someone who you trust with your finances and discuss exactly what you want to do. You should be able to release equity easily enough with CBA for the next purchases.

Having someone know what they're doing will save you a good amount of $$$ you currently have funds in offset from your comments, what, where and how you use these funds can save you $$$

LOC is a NO from me from reasons already mentioned, the clauses aren't the best with them, you're charged higher rate in most cases and also pretty easy to mix the purpose of the funds.

Best of luck

Hi Brady,
Relationship is direct with a CBA banker at the moment. That's a good idea, my only concern is people seem to suggest I should be engaging a good broker to get better ideas and access to different/ multiple lenders?

We are eligible for loans up to 90% without LMI (wife profession), so there is good room for releasing equity in all 3 loans.

In terms of risk appetite, if market and opportunity permits, would like to be acquiring a property a year (IP1 was 2012, IP2 was 2013 and PPOR was 2014).

There is also a risk management component that's on my mind including having a good buffer and the right structure in place, but don't think I have sufficient knowledge around this topic. Is this a discussion with a broker or an accountant?
 
Hi Shahin,
What constitutes a credit enquiry? Is it considered one if it's just a better rate request? or a top up with the same lender? or happens when we start shopping around for pre-approvals with multiple lenders?

Thanks!

1. No credit enquiry when you call the bank and ask for a better rate. Only if you submit a new application.
2. Top up's require an application, so yes, there'll be a credit enquiry.
3. Yes - this will be a credit hit. Too many of these are pointless and will hurt your file.
 
Hi Brady,
Relationship is direct with a CBA banker at the moment. That's a good idea, my only concern is people seem to suggest I should be engaging a good broker to get better ideas and access to different/ multiple lenders?


Most people on SS are brokers or brokers in training :) multiple lender is pushed for many reasons largest you would hear is $1M which each bank, thats around the average DUA (delegate underwritting authority) for each bank. Staying under DUA is usually a good think makes things easier. Brokers can't get better deals then bankers with CBA. A good banker will be able to do CBA better then a good broker setting you up with CBA. But They wont be able to offer you other banks products (but some will know when enough is enough and pass onto a broker if required)

We are eligible for loans up to 90% without LMI (wife profession), so there is good room for releasing equity in all 3 loans.


Excellent room and very easy to arrange. I would be getting equity release arranged on all 3. I recommend in most cases that clients do equity releases ASAP, it's always easier to get money when you dont need it. This way it locks in the valuation amount, therefor if there is a decrease in valuation at later stage it's all good because you have the funds available already, if it goes up bonus can access more equity. Please ensure that your current loans aren't crossed and don't cross going forward. Best thing is NO LMI means DUA doesn't come into play.

In terms of risk appetite, if market and opportunity permits, would like to be acquiring a property a year (IP1 was 2012, IP2 was 2013 and PPOR was 2014).

Considering you can go 90% without LMI shouldn't be too hard. Discuss this plan with your broker/banker that you end up going with. They should be able to provide you with senarios around the equity releases on your current property, then show you what you could possibly do each year. They will be able to show the affordability/serviceability to show if it can be done and tell you if it can't.

There is also a risk management component that's on my mind including having a good buffer and the right structure in place, but don't think I have sufficient knowledge around this topic. Is this a discussion with a broker or an accountant?

Risk management is a big key IMO. I personally have like to have minimum of 6months interest in offset (it's gone below when purchase was too good to pass up on). Pending my most recent development and increase in debt level will look to increase to 12 months. A decent broker/banker will able to run through some figures but wont be able to advise. Accountant will able to give more specific figures including PLAN A, B & C if say had to sell, CGT etc.
 
Have just stumbled across this forum in the last couple days and what a great site!

We're currently in knowledge acquisition/ planning stage to be able to act quickly when then time is right for our next purchase.

Am seeking advice from the experienced people on how we should structure our finances.

We are currently renting and construction is in progress for our PPOR (due for completion Sept/ Oct 2015) which is at ~75% LVR (on variable rates). PPOR has two offset accounts.

Currently also holding 2 IPs.
IP1: 70% LVR (50% variable/ 50% fixed until December 2015)
IP2: 80% LVR (Fixed until November 2015)

All loans are with CBA at the moment with rates ranging from 4.7% for variable rate loans and up to 5.39% for fixed rate loans. None of them have LMI.

From the forums, it seems some lenders are doing rates at 4.6% or lower at the moment. Do feel that the fixed rate loans are holding us back from enjoying the the low rate environment!

What are suggestions to get our borrowings/ refinancing/ equity in order for our next purchase?

Would like to keep things simple without cross collateralising or tax deduction issues?

Is it wise to stay with CBA or start diversifying with other lenders? (Service with CBA has been great so far other than my mistake partially fixing the loans)

We're currently in accumulation stage and want to continue acquiring IPs. The 2IPs above was just a standard buy and hold. It seems I'm following the natural progression path and for our next project, am wanting to look at a buy, reno and release equity.

Thanks!

Hi En,
I also stumbled across this forum in recent years. I certainly wish I had found it much earlier in life.

That said, I was fortunate enough to discover 'Terry W' who is a member here.

He not only provides finance but has a great depth of knowledge in finance, tax and legal issues. For us he has set up entities from which we not only get an income but also security from any person who decides to sue us for whatever reason. These also provide security and a seamless succession for our family. You need to set these up early on to save having to pay any transfer duties if holding property.
As for loans and the most effective way to handle these I wouldn't see anyone else. He's our 'go too' guy for all matters financial and legal...I am even sending my mum to him to get a will drawn up as he is a specialist in this area as well. The guy is a sort of 'one stop shop' for just about everything to do with property structures, loans and legal stuff.
GW
 
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