Browse Forums Home Finance Re: Our mortgage is brand new - and we should've asked for m 2Oct 09, 2013 7:11 am http://camdenbuild.blogspot.com.au/ by invite only please pm me Re: Our mortgage is brand new - and we should've asked for m 9Oct 09, 2013 6:57 pm Travelbug, I understand the perception of issues that cross collateral may pose however these can often be overcome. In a perfect world each loan would have its collateral unique to the loan however this is not always possible. I guess the issue can get magnified when moving assets around as banks may try and dictate what you do to their advantage. I must admit that I have not actually thought about it for my portfolio as my ltv is low. However I am refinancing and it is food for thought as to how I post my collateral. I may pm you if you don't mind. Cheers Mark Re: Our mortgage is brand new - and we should've asked for m 10Oct 10, 2013 12:21 am WesternFront Thanks Tom. Reassuring to think we have a good shot at a top-up. Just curious, why do you consider cross-collateralising a no-no? We didn't want to pay lender's insurance but we didn't want to wait while we saved a bigger deposit so when the broker suggested we take this route it seemed reasonable to us... Totally understand that you didn't want to pay LMI, however you also need to realise that any deal that prevents LMI by cross collaterising can also be done by having individual loans against individual properties. It's a common misconception and any broker that doesn't at least offer it to a client as an option is lazy (just because it involves two applications doesn't mean they ignore it) or they are limited in their knowledge. Taking your example this is how it could have been done: Loan application 1 against IP (value $350K): Loan amount: $137K as equity release for 20% deposit and reno costs for PPOR. LVR is 39%. Loan application 2 against PPOR (value $410K): Loan amount: $328K. LVR is 80%. You still get your $465K to spend however it is spread over two loans and each against one property only, you don't pay LMI and it's not cross-collaterised. Also would be easy to now ask for a further equity release against your IP. Many advantages of not crossing. Some are: 1. In a crossed situation when asking for an equity release they will be valuing both properties so you would hope that one hasn't dropped in value limiting your chances. 2. If you sell one property in a crossed situation because you need funds, the bank might say sorry we're using all the funds from the sale to pay down the loan and not give you any as the remaining property LVR is too high for our liking. 3. If something goes wrong and you can't afford to pay the repayments back, the bank chooses which property to sell so it might be your PPOR instead of your investment. 4. If you have investments mixed with a PPOR, with crossed properties you don't maximise your deductibility. Basically not crossing gives you more control than the bank, so it's much more beneficial to the borrower. Cheers Tom Re: Our mortgage is brand new - and we should've asked for m 11Oct 10, 2013 12:38 am Tom, +1 on your answer. It sets out and clarifies the issue nicely. It has certainly made me think about how I restructure my finances. I do not think the interest on the loan would be deductible in the above scenario as the purpose of the borrowing is not incurred in earning income. My issue is that I have a couple of loans with assets held in a pool to cover the borrowing. My LTV is very low however as I want to borrow more to invest it makes sense what you say so that you can control which assets go where. I think that releasing equity from value in PPOR should probably be done via a separate loan as I could see it getting messy with apportionments etc. I appreciate your post as I am sure the OP does as well. Cheers Mark Re: Our mortgage is brand new - and we should've asked for m 12Oct 10, 2013 1:43 am AussieMark Tom, +1 on your answer. It sets out and clarifies the issue nicely. It has certainly made me think about how I restructure my finances. I do not think the interest on the loan would be deductible in the above scenario as the purpose of the borrowing is not incurred in earning income. My issue is that I have a couple of loans with assets held in a pool to cover the borrowing. My LTV is very low however as I want to borrow more to invest it makes sense what you say so that you can control which assets go where. I think that releasing equity from value in PPOR should probably be done via a separate loan as I could see it getting messy with apportionments etc. I appreciate your post as I am sure the OP does as well. Cheers Mark You're correct on that. As the funds are completely for the new PPOR, there won't be any tax deductibility for this particular scenario, unless the OP decides to move out and make it an IP later on. I just thought it important to let people know that there normally is a way against crossing, and my biggest gripe is reserved for those brokers and bankers who take the easy route and cross without thinking that it probably isn't in the clients best interest. It's stuff like this that separates good brokers from the bad. Cheers Tom Re: Our mortgage is brand new - and we should've asked for m 13Oct 10, 2013 4:42 pm I refinanced several of my IP's a few years ago. When the paperwork arrived they had crossed them all. They had all properties listed on all the loans./ I said no that's not correct. I had specified I wanted stand alone loans. The broker ASSURED me they weren't crossed. Crikey it was written on the documents. So I sent her away to rewrite them. I got a LOC on my PPOR to use as deposits and legals for new purchases. That way I could just get 80% loans without incurring LMI. And that way you can borrow 105% of the purchase price (all deductable). Having a healthy LVR helps. Re: Our mortgage is brand new - and we should've asked for m 14Dec 02, 2013 8:49 am A quick update just in case anyone in the same predicament reads through this thread later - we approached the bank again (via our mortgage broker) and they were more than happy to give us the extra dosh we needed. (In fact we ended up getting a little bit more than we originally wanted, because we figured if we didn't end up needing it, we could sink it back into our variable loan.) The bank didn't want to see the property again, nor were they interested in seeing quotes or contracts from our tradies as evidence that we were indeed putting the extra money towards improving the house. All they wanted to see were fresh payslips, which makes me think that all the bank cared about in our case was serviceability. The entire process - from when we first approached our broker to when the money showed up in our account - took one month, down to the day. Hope this will be of use to someone else in future! (PS: As for all the comments about the whole cross-collateral side of things - I think you've convinced me it wasn't the best way to go. Having said that, we have no need to free up capital now and it's not on the cards for the next few years, and we're so consumed right now with the stress of renovations that I'm happy to leave it be. Once we've fixed our house up and moved in, I'll reconsider our position.) 9 24826 I am in a difficult situation. Long story short I have been handed over my brand new home in Sydney with everything in the house being great except the windows that were… 0 980 Thank you. That is really helpful. Once we get the place done and passed for OC we can upgrade in the future once we get back on our feet and not paying mortgage and rent. 4 5758 |