Help! - Can I use my PPOR as a Guarantor for an IP??

[ca295]

Hi all,

Can someone please help me out?

My PPOR is valued conservatively at 750k with 170k owing on it.

I am looking at purchasing an IP for 300k. I want to put 5% deposit down.

Can I use my PPOR as a guarantor for the other 15% to avoid me paying LMI?

If this is possible, can I do this without refinancing my PPOR?

I understand the bank take out a second mortgage on PPOR for the other 15% of the deposit but hopefully this does not mean I need to refinance my PPOR? Id prefer not to refinance if possible.

Basically I'm trying to purchase an IP with minimal deposit for negative gearing purposes, and I'd rather not take a chunk off my PPOR.

Thanks

C

 

[Peter_Tersteeg]

You've got the right idea but the terminology is wrong as a guarantor can't be a house, it's generally a person (kind of like a borrower)

You can access the equity in your house. Take a second loan against your house for the full 20% plus stamp duties. You then use this money, plus an 80% loan against the IP. You usually don't need to move lenders to do this.

Make sure it's a separate account to your home loan. This ensures that it's very clear what money is tax deductible and what's not.

Also make sure the lender doesn't take your existing home as security for a loan to cover 105% of the IP purchase price. This is cross collateralisation, there's plenty of posts here that describe why this is a bad thing.

 

[ca295]

Thanks Peter, yeah I know its a person but since I was referring to myself I chose to reference the asset lol thanks so much for your reply mate.

I totally understand cross collateralisation, thats sort of what I'm trying to avoid here, along with paying LMI and taking a chunk off my mortgage.

Does it throw a spanner in the works if the IP is going into my name solely for negative gearing income tax purposes and the PPOR is in my wife and I's names ?

Finally can I go to a different lender for the IP only?

Thanks again for your reply.

 

[Mick C]

Hi all,

Can someone please help me out?

My PPOR is valued conservatively at 750k with 170k owing on it.

I am looking at purchasing an IP for 300k. I want to put 5% deposit down.

Can I use my PPOR as a guarantor for the other 15% to avoid me paying LMI?

If this is possible, can I do this without refinancing my PPOR?

I understand the bank take out a second mortgage on PPOR for the other 15% of the deposit but hopefully this does not mean I need to refinance my PPOR? Id prefer not to refinance if possible.

Basically I'm trying to purchase an IP with minimal deposit for negative gearing purposes, and I'd rather not take a chunk off my PPOR.

Thanks

C

You can stay with your current bank. Just need to carry out a SPLIT loan equity release ( very important for tax reasons) with your current provider = this will provide you with 15-20% + Stamp duty in cash.

You use this cash to buy your next place

 

[Peter_Tersteeg]

I think in this instance where you mean guarantor, you're really referring to security.

Your wife will need to be the co-borrower on the equity loan because she's on the title of the house. She could alternately provide a security guarantee (but co-borrower would be easier and more cost effective with the same result).

I can't speak as an accountant, but you're probably aware detectability is based on the purpose of the loan. This would suggest that it's deductible against the person who owns the asset it purchases. If your accountant isn't comfortable with this then your wife could guarantee the equity loan instead of being the co-borrower.

It's no problem to take the IP loan to another lender. It's one of the main benefits of avoiding x-coll.

 

[ca295]

You can stay with your current bank. Just need to carry out a SPLIT loan equity release ( very important for tax reasons) with your current provider = this will provide you with 15-20% + Stamp duty in cash.

You use this cash to buy your next place

Michael, You're a legend mate. Thanks for replying. I will check it out tomorrow.

I didnt want to refinance or cross collateralise so thats a great help.

Can I still negotiate a good deal on a loan or are the rates higher as I'm using equity rather than cash for a deposit?

Thanks

 

[ca295]

I think in this instance where you mean guarantor, you're really referring to security.

Your wife will need to be the co-borrower on the equity loan because she's on the title of the house. She could alternately provide a security guarantee (but co-borrower would be easier and more cost effective with the same result).

I can't speak as an accountant, but you're probably aware detectability is based on the purpose of the loan. This would suggest that it's deductible against the person who owns the asset it purchases. If your accountant isn't comfortable with this then your wife could guarantee the equity loan instead of being the co-borrower.

It's no problem to take the IP loan to another lender. It's one of the main benefits of avoiding x-coll.

Thank you so much Peter, wonderful help. Champion mate.

 

[Brady]

Michael, You're a legend mate. Thanks for replying. I will check it out tomorrow.

I didnt want to refinance or cross collateralise so thats a great help.

Can I still negotiate a good deal on a loan or are the rates higher as I'm using equity rather than cash for a deposit?

Thanks

You should get a better rate as you will be borrowing more.