x-collat

I'm also pretty new at this and I have just been reading the post on x-collat and I'm afraid to say "I still don't get it!" and would appreciate your advice please.

My PPOR is valued at $550k with $125k owing.
A couple of months ago I purchased a unit $125k, using the equity and security of PPOR.
I am now looking at puchasing another at $105k, using eq & sec PPOR, but see the advice from the majority is not to do this because it will tie up all loans...what security do I use for 2nd IP please?
thanks,
confused
 
You draw out the deposit and closing costs from your PPOR (or IP if it has the equity).

You then settle the other independantly.

Financially, keep track (I use a spreadsheet) that $X,000 of your PPOR belongs to IP # x

You're still using your PPOR for the funds, but not giving the bank the title for security (or x-coll).

The result is the same, you were always using some of your PPOR equity to pay for the IP, just now each loan in stand-alone.

Cheerio

Simon.
 
To do it you need to get a Line of Credit on your PPOR , and use this to pay for your deposits.

The LOC is secured only by the PPOR , and the IP's hvae stand alone loans .

See change
 
What do people think about this strategy:

Use paid off PPOR as a security to buy IP1,
then use IP1 as a security to buy IP2,
then use IP2 as a security to buy IP3, etc

In this case each loan has only one security property. Is it a valid structure? Would my properties be technically x-colled? What are the drawbacks?

Cheers,
Lotana
 
Originally posted by sbe
You draw out the deposit and closing costs from your PPOR (or IP if it has the equity).

You then settle the other independantly.

Financially, keep track (I use a spreadsheet) that $X,000 of your PPOR belongs to IP # x

You're still using your PPOR for the funds, but not giving the bank the title for security (or x-coll).

The result is the same, you were always using some of your PPOR equity to pay for the IP, just now each loan in stand-alone.

Cheerio

Simon.

My bank said I couldn't do it that way because I asked. I borrowed the full amount of my 2 IP's and used the equity in my PPOR as my deposit. But like it didn't physically come out. Or did I use my house as security. Anyway she said in effect I'm using my PPOR for the deposit but they can't just take say $34,000 equity out of my house, they had to put a security over the whole house.

I'm really quite confused now. She said when I've got enough equity in my IP's for the deposit amount, then she can take the security off my PPOR. So l bought my first IP for $81k and when thats worth $97,200 or $16,200 equity in it (that was at 20% deposit) she can take that house off my PPOR.

Does this sound right or did she set me off on the wrong path?
 
hi franchesca

I would personaly go down the path of taking the biggest LOC on your PPOR as posiable. I would then use that to either pay the 20% and settlement costs or buy the IP outright.

I would lean to buying outright using the LOC....saves on valuation and legal fees. You would have to be comfortable in knowing you are paying an acceptable market price. Later on you can take another LOC on your IP and do it all again.

bundy
 
What they've done Queenie, is take your whole house (say $300,000 or whatever) to secure $34,000.

Pretty good deal for the bank huh....

They had to secure your house against a loan, but instead of you getting the maximum available, you only got $34,000, and they got the full security!

As for the bank saying you cant - they cant stop you.

You are paying 20% + costs from "savings" (your LOC). They are loaning 80% - like any other loan.

I'd have to understand a bit more about your situation to know if you were misled.

Regards,
Simon.
 
Originally posted by Lotana
What do people think about this strategy:

Use paid off PPOR as a security to buy IP1,
then use IP1 as a security to buy IP2,
then use IP2 as a security to buy IP3, etc

In this case each loan has only one security property. Is it a valid structure? Would my properties be technically x-colled? What are the drawbacks?

Lotana,

Ever seen one of those amazing domino displays where they knock over one domino and thousands follw with fireworks & other special effects let off by the dominos....

The structure you are suggesting sounds like those dominos to me....(though I'm probably being over-dramatic...I always loved watching those dominos fall).

Why not use a LOC on your PPOR to get the deposit and then secure each IP by itself?

Cheers,

Aceyducey
 
We have a 400K LOC secured on our PPOR.

This is segmented into four different sections. One of these sections has an offset account against it so we put any spare money into the offset account , and it cuts down interest on that account.

We have drawn down money on two of these to pay for deposits and fees associated with purchases in two different trust funds.

On one occasion we paid the full amount of three IP's ( cheap one's ) , did minor reno's and got them revalued for reasonably more than we paid for them. We were then able to get them financed on the new valuation. It's didn't quite cover the whole purchase costs, but it meant that we only used a small amount from the LOC to secure three properties that were cash flow positive.

Currently most of the LOC is unused , but avalable at short notice.

Non of our loans our x collateralised.

One thing to be aware of, is if you want to buy multiple properties, is that Mortgage insurance can be a good thing.

It will enable you to borrow more on individual properties with your early purchases. Once you have multiple mortgages , the Mortgage insurers / banks get itchy , so are less likely to lend at 90%. Get the 90 % loans early on , use less of your money to pay for deposits early on , so when the banks get itchy feet after the tenth property , you still have money left so you can afford the 20 % you need at that stage.

see change
 
which IP should i get back?

From what i've been reading here about X-Coll, it seems i'd be better off trying to get an unencumbered title to one of my IP's?

My loan is I.O. and has a discounted rate, which expires next month. The loan will also revert to P&I at the same time.
My loan is currently $400k and the 3 IP's being used as security are now valued at:
1) $270k
2) $360k
3) $210k

Next month when i have to go P&I and pay a different interest rate, i thought i should get a title back.

Can anyone suggest which IP i should try and get back?
Should it be the one with the highest value but also still provides security for my loan?

For example, if i took back IP #1, that would leave the bank with security of property worth $570k. Do banks only give 80% of this? So $570k x 80% = $456k, which is enough security to keep the bank happy with my $400k loan?

Am i on the right track here?

And if i wanted to borrow more in the future, i could always give them back IP #1 if i had to?

Also, am i responsible for paying the revaluation costs on all 3 IP's if i want get a title back? Or will the bank kindly do this for me?

Thanks,
Mark
 
Hi Capitalist,

To get a certificate of title back from the bank means refinance. Either with the same bank, or with another lender. They will have to put you through the approvals process again. If you use the same bank you generally shall be able to negotiate better terms (no app or val fee, discounted rate, etc). If you go beyond 80% LVR you will be required to pay loan mortgage insurance, which is unnecessary in your situation.

When refinancing - you have to be careful with loan purpose for deductibility of interest expenses. Talk to a property-aware accountant on this.

Cheers,
Lotana
 
Capitalist,

Why don't you contact the bank and ask to go interest only again for another 1-5 years. Majority of them will agree. This will save on vals etc, unless of course you want to release the security on a property. I do mine for 5 years at a time - just saces a lot of mucking around ebery year.

Banks are like vultures and want you at their mercy. They want everything, all of your assets tied up and in return, what do we get, BANK FEES - God bless them!!!

Cheers
BUNDY
 
Thanks for the info Lotana, it's something i didn't realize.
Refinancing would be a problem for me because i'm currently unemployed, and doubt i would be able to satify the bank's serviceability requirements.

Bundy, that's the main reason why i don't want to negotiate another I.O. period - because i fear they'll laugh at me when they find out i'm unemployed. :(

I think i'll just keep things as they are and go P&I next month.
When i find work and want another loan, they already have the security, so i'll just need to keep them happy with serviceability.

Thanks again,
Mark
 
Capitalist,

How will the bank find out your unemployed if you don't tell them?

Give them info on a need to know basis. Tell them what you think they need to know - ie Nothing!!!!!

I don't know which bank your with, but I went from P & I to IO on one of my investment properties by phoning one of their 1800 numbers and just telling them I wanted to switch. They did it over the phone and just sent the paper work out for me to sign. I think I spoke to someone at head office in Melbourne (Westpac)I didn't have to go through the whole process of a new/full application or show income/rental details. They just looked up my account details on line and gave me the OK.

Worth a shot, better to pay IO than P & I, particularly if you are unemployed.

BUNDY


Originally posted by capitalist
Thanks for the info Lotana, it's something i didn't realize.
Refinancing would be a problem for me because i'm currently unemployed, and doubt i would be able to satify the bank's serviceability requirements.

Bundy, that's the main reason why i don't want to negotiate another I.O. period - because i fear they'll laugh at me when they find out i'm unemployed. :(

I think i'll just keep things as they are and go P&I next month.
When i find work and want another loan, they already have the security, so i'll just need to keep them happy with serviceability.

Thanks again,
Mark
 
Different banks have different rules for releasing titles.

Some will revalidate everything as suggested, some will only revalue the remaining security.

I've checked with my PPOR financier (St George), who tell me they will just revalue PPOR and if OK, release IP#1.

Cheers,

Simon.
 
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