Need options to avoid X loan and LMI

[catcha]

Hi All,

I’m just considering my options on how to structure my loan to buy my PPOR without cross loans and avoiding mortgage insurance.


IP: Bank Value 550k Loan Homeside 365K

Offset account I have 55k
Bank Guarantee with CBA 50k (recent deal I have just pulled out of that I can put towards PPOR.)


PPOR 430k + 15k stamp duty = 445k
50k bank guarantee with CBA
30K from offset account
365k Loan required.

Loan 365k / 430k = 85% LVR = mortage insurance

If I use the additional support from IP then no mortage insurance.

One loan of 365k with two securities and I still have 25k from my original offset to be place in PPOR offset when set up.

This advice was from my broker and originally I was ok with crossing loans and using the IP as security but the more I read on the forums the more I’m moving away from it. It was suggested it was easier since I had drawn out 25k from the equity to make it 365k originally the loan was 345k. And with having another loan with another bank I would have reduce interest claim back to 345k. Which at the time I thought was a hassle and better to bundle it all into one.


How else Can I do ? i'm so confused and getting it right from the start seems to be very important then having to undo it down the track

 

[jonmardell]

pretty simple, either do another loan with homeside to draw out some more equity to use as a deposit and borrow 80% against the new property. or alternatively you might be able to get a better deal by refinancing the current loan and doing the new loan with a new lender but still keep them uncrossed.

 

[tobe]

if you would like to avoid xcoll and LMI, simply draw up the loan on each property to 80%, and use those additional funds as the 20% deposit plus costs on the new purchase.

In practice this can be a little more dificult, with low valuations, cash out restrictions etc Along with serviceability/structuring issues such as which lender to approach for what in terms of their policies, and your future goals and needs.

Depending on where you sit it is sometimes advantageous to consider LMI for IP purchases. It can keep some powder dry, in terms of both serviceability and having some SANF funds in the offset account.

Xcolling two properties at this stage of your investment journey isnt uncommon, and it shouldnt be that dificult to unravel at the next stage in any case, depending on the lender. I would need to know some more infomation, but I wouldnt dismiss xcolling the 2nd IP to the first, if it meant a substantial interest rate discount, fee waiver etc, or was with a lender whose after settlement change process was easy, after thorough investigations of the alternatives of course....

 

[Marty McDonald]

Hi Catcha,

What about this.

IP SECURITY

loan 1) $365,000 - no change
loan 2) $47,500 - create new loan (and use funds as deposit for PPR)
LVR = 75% = Homesides best % rates.

PPR SECURITY

Borrow 75% for PPR = $333,750

$430,000 Purchase + $17,000 costs = $447,000
= $113,250 funds to complete required...from...
less $47,500 (from loan 2)
less $50,000 (from CBA)
less $15,750 (form offset)

Stand alone securities both at 75% LVR or you could do 80% on one or both securities if a 0.1% or so in rate is not important.

 

[Rolf Latham]

How else Can I do ? i'm so confused and getting it right from the start seems to be very important then having to undo it down the track

Marty has laid it out very simply.

Seeing your existing broker probably wont be very keen on "fixing" what aint broke, id suggest you give Marty a call / email and let him "de fog" you .

ta
rolf

 

[Aaron_C]

Was your broker from a major franchise? I keep coming across these people whose big-name brokers have crossed the loans left-right-and-centre that it ends up like a dog's breakfast.

 

[catcha]

Was your broker from a major franchise? I keep coming across these people whose big-name brokers have crossed the loans left-right-and-centre that it ends up like a dog's breakfast.

Hi Aaron, he is not a major Franchise. But he has been pretty good and did suggest cross x, just to save me from the tax hassle.

i'll see what he has to say cause I did make up my mind to do cross x

 

[evisional]

Open a new equity loan (LOC) of $20,000 against the IP and use it to deposit for the PPOP.

So, you can have

50k bank guarantee with CBA
30K from offset account
20K equity loan
-----
100K deposit

LVR = (430K + 15K - 100K)/430 = 80% (No LMI)

 

[Aaron_C]

Hi Aaron, he is not a major Franchise. But he has been pretty good and did suggest cross x, just to save me from the tax hassle.

i'll see what he has to say cause I did make up my mind to do cross x

Cross coll is, in the vast majority of cases, not a good idea. It does not save you from a tax hassle either.... it helps the bank though!

 

[Terry_w]

What tax hassle could there be?

 

[catcha]

Yes i realise whatever the tax thing I need to do is worth it. I have read there are too many Cons, I also like to have the option of accessing future equity. which been reading could be and issue.

I'll give my current broker one more chance to make things right, he is a friend of a friend. And has been pretty good to deal with to date

 

[Aaron_C]

But whether the loans are cross collateralised or not has no bearing on the tax treatment of the loans...

 

[catcha]

But whether the loans are cross collateralised or not has no bearing on the tax treatment of the loans...

From My understanding as if I have drawn on equity on my IP the 25k, and use that 25K with a new loan say CBA, The tax issue is that I cannot claim interest on my 25k with is 365k totol I have to drop it back to 345k. I have spoken to my accountant yet and not sure how much of a bearing it has but will find out and the end of the month.

Also my understanding is that even though I have pulled out 25k in equity. but if I keep it within the same loan homeside and cross collateralised but keep in offset account within the same loan, I won't have to reduce my claim on interest of the existing loan

 

[Aaron_C]

catcha,

I'm sorry to say but what you are saying is incorrect. You are confusing the convenience of having loan splits across 2 cross collateralised securities with the tax deductibility of each one. The tax deductibility applies to the purpose of the loan, regardless of who lent you the money and regardless of which security the loan is attached to. So, if you use part of IP#1's equity to fund IP#2, and get a loan from say CBA to do so, in your tax return, you will claim the extra equity as a tax deductible portion of the loan against IP#2, NOT IP#1, because the purpose of the loan is for IP#2.

 

[catcha]

catcha,

I'm sorry to say but what you are saying is incorrect. You are confusing the convenience of having loan splits across 2 cross collateralised securities with the tax deductibility of each one. The tax deductibility applies to the purpose of the loan, regardless of who lent you the money and regardless of which security the loan is attached to. So, if you use part of IP#1's equity to fund IP#2, and get a loan from say CBA to do so, in your tax return, you will claim the extra equity as a tax deductible portion of the loan against IP#2, NOT IP#1, because the purpose of the loan is for IP#2.

Thanks for that Aaron, like I said i'm assuming and have only took the equity about 2 weeks ago. I have to speak to my accountant in regards to this