Working out LVR

Hi,

My PPOR is unencumbered and I have investment properties with a LVR of 50 percent. I have been assessing the LVR without taking the unencumbered PPOR into account. When working out the LVR of the investment properties do investors take into account their home? If I put my home into the equation it would bring down the LVR to 33 percent.

Thanks
 
Hiya

Different strokes for different folks.

Is this for you own calculations or for future investing purposes?

Cheers

Jamie
 
Lvr

Jamie,

For future investment. I am looking at Brisbane. I haven't borrowed against my home in the past. I have a cross collaterialised loan with ME and a PPOR with an offset. My home has a debt of $400K and I have $400K in the offset and any excess each month I place into the investment loan with ME.

LE
 
Heya, if crossed, calculate total loan amount and divide by the combined value of both assets.

If you're looking to buy again, take the opportunity to uncross.

Cheers,
Redom
 
Heya, if crossed, calculate total loan amount and divide by the combined value of both assets.

If you're looking to buy again, take the opportunity to uncross.

Cheers,
Redom

Thanks,

I was thinking of just having the crossed investment loan properties value reassessed and borrow against the increased equity. I am not sure I have to uncross.

LE
 
Thanks,

I was thinking of just having the crossed investment loan properties value reassessed and borrow against the increased equity. I am not sure I have to uncross.

LE

Can i ask why? Theres not much benefit for you in having your loans crossed, it benefits the banks when you need flexibility.

Its less likely to be a major issue when your LVR is so low, but it can cause costly issues in the future.

A client of mine just got lucky and had a 100k gain on one of his Sydney properties...was planning on using it until the bank valued his four others and realised his short (couldnt take it out). Simply setting up his loans right wouldve saved him a fair bit of cash and kept his deposit deductible. This is a pretty tame example too...can get much worse.

Cheers,
Redom
 
Can i ask why? Theres not much benefit for you in having your loans crossed, it benefits the banks when you need flexibility.

Its less likely to be a major issue when your LVR is so low, but it can cause costly issues in the future.

A client of mine just got lucky and had a 100k gain on one of his Sydney properties...was planning on using it until the bank valued his four others and realised his short (couldnt take it out). Simply setting up his loans right wouldve saved him a fair bit of cash and kept his deposit deductible. This is a pretty tame example too...can get much worse.

Cheers,
Redom

I have kept the properties crossed basically because it is easier, I take one statement to my accountant each financial year. I get visibility on the loan by looking online. I appreciate what you are saying, I am with ME Bank and not only are they no frills (no interest in advance payments, can't pick own pin on cards etc.) but their valuations are on the low side. As stated my LVR taking my PPOR into the equation will be 33 percent, so I will refinance with a bank offering interest in advance payments and purchase IPs bringing up the LVR to 50 (inclusive of my PPOR)

Thanks
 
Crossing makes things simple, right up to the moment it creates a problem. At this point it can become a nightmare. Better to restructure while it's easy then when it becomes a problem.

If the portfolio is crossed you need to include your POOR in the LORD calculation. Money in an offset account reduces the interest but it doesn't reduce the amount you owe.
 
If you have $400k loan with $400k offset then your loan is not paid off and certainly not unencumbered.

If the value was say $800,000 you would still have a 50% LVR on this.
 
I have kept the properties crossed basically because it is easier, I take one statement to my accountant each financial year.
Easier doesn't mean better.

When accessing equity this time - it could be a good opportunity to tidy up your current structure.

Cheers

Jamie
 
Liverpool St - you've heard the view of the professionals on the forum; its good to have a full information set when making these choices.

If you know all the info and are comfortable with, that's fine, you may never actually encounter any problems and you certainly wont be the only one with your loans crossed. If you're already going through the process of refinancing, it may be best to do a simple uncross though. The additional 'cost' (financial/hassle) is quite little in your scenario if you're already refinancing.

Cheers,
Redom
 
If you have $400k loan with $400k offset then your loan is not paid off and certainly not unencumbered.

If the value was say $800,000 you would still have a 50% LVR on this.

Thanks Terry,

I know what you are saying and to the financial institutions it isn't unencumbered but to me it is. I can pay it down anytime I like and I have excess funds coming in each month and any excess goes to the investment loans.

LE
 
Really?
Thats s**t.

Yeah. Low valuations and variable interest rate of 5.38. I am sure I can do better in this environment. I have been tempted to lock in at 4.59 fixed, however, with rates not going north there might be a possibility of them going south so I am hanging on

LE
 
Crossing makes things simple, right up to the moment it creates a problem. At this point it can become a nightmare. Better to restructure while it's easy then when it becomes a problem.

If the portfolio is crossed you need to include your POOR in the LORD calculation. Money in an offset account reduces the interest but it doesn't reduce the amount you owe.

Thanks Peter,

I am not sure what you mean by "LORD" calculation. I have the IPs in a crossed loan and the PPOR with an offset.

LE
 
Liverpool St - you've heard the view of the professionals on the forum; its good to have a full information set when making these choices.

If you know all the info and are comfortable with, that's fine, you may never actually encounter any problems and you certainly wont be the only one with your loans crossed. If you're already going through the process of refinancing, it may be best to do a simple uncross though. The additional 'cost' (financial/hassle) is quite little in your scenario if you're already refinancing.

Cheers,
Redom

Thanks, I am trying to keep things simple, my accountant fees are high enough. Notwithstanding the above, I might have to get advice.

LE
 
Thanks Peter,

I am not sure what you mean by "LORD" calculation. I have the IPs in a crossed loan and the PPOR with an offset.

LE
Auto correct on my phone. I mean to say LVR. :)


Yeah. Low valuations and variable interest rate of 5.38. I am sure I can do better in this environment. I have been tempted to lock in at 4.59 fixed, however, with rates not going north there might be a possibility of them going south so I am hanging on

LE
5.38% is so terrible it's almost criminal. At a minimum you can do about 0.7% better.

Thanks, I am trying to keep things simple, my accountant fees are high enough. Notwithstanding the above, I might have to get advice.

LE
Working out interest on a non crossed portfolio is easy. You ring the bank, give them each account number and they tell you how much you paid on each loan. It only takes a few seconds and you include this in the expenses for each property which you give to your accountant.

It's one or two extra numbers per property, not an extra process. If they charge you extra for this, either they're charging too much or there's a bunch of other deductions they're ignoring.



Here's the real problem. You've got a cross-collateralised portfolio with BankWest. This is definitely going to get in the way of further investing sooner or later because BankWest is one of the most conservative lenders there is in their affordability calculators.

At some point BankWest will refuse to lend you any more money regardless of how low your LVR is, whilst most lenders would still allow you to borrow more. All of your equity is tied up in BankWest and it's tied in a mess.

Even if you want to purchase through a different lender, BankWest won't allow you to access equity in your portfolio because they'll want to know what you'll use the money for and when they see the purpose, they'll apply their calculators to it and deny the equity to you.

At this point you might want to refinance one property away from BankWest to access the equity. BankWest now knows what you want to use the equity for and they won't release the property you're refinancing because of the same reason they won't release the equity.

The only option you'll be left with is to refinance everything so you have no exposure to BankWest at all. At this point you've been messing around with all this for about 6+ weeks and you've missed out on the property you were planning to buy.

This probably won't happen on the next property and maybe not the property after that, but if you're going to build a large portfolio it will happen. With each property you buy in the meantime, it gets harder, takes longer and is more expensive to fix the problem. If you fix some of your loans it makes it even more expensive and harder again.

If good structuring isn't a compelling argument, consider that you can also do much better cost wise. (Even BankWest can do better than what they're offering you if they're honest about it). The amount it costs you to fix this now will be refunded many times over simply because you'll get a cheaper deal almost anywhere else.
 
Auto correct on my phone. I mean to say LVR. :)



5.38% is so terrible it's almost criminal. At a minimum you can do about 0.7% better.

This probably won't happen on the next property and maybe not the property after that, but if you're going to build a large portfolio it will happen. With each property you buy in the meantime, it gets harder, takes longer and is more expensive to fix the problem. If you fix some of your loans it makes it even more expensive and harder again.

If good structuring isn't a compelling argument, consider that you can also do much better cost wise. (Even BankWest can do better than what they're offering you if they're honest about it). The amount it costs you to fix this now will be refunded many times over simply because you'll get a cheaper deal almost anywhere else.

Thanks Peter,

I am coming up to 64 so will stop the accumulation phase in the next few years. I would be interested on your opinion on fixing the rate

LE
 
The fixed rate market is ME bank's main strength. They don't compete in the variable space. I think their aim is to have everyone on the same variable rate (part of the 'bank fairer' initiative). Given legacy issues associated with loans written years ago, they've kept their variable rate really high.

Cheers,
Redom
 
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