Loan Structure

All in one Mortgages
Line of Credit
Interest in Advance
SMSF Loan

Any mortgage broker or investment banker can set up a loan for you but do they really know how to structure it best?

You may think that the phrase loan structure is used so that banks can charge higher interest rates and more fees, but that’s not the case if done correctly. In general many mortgage brokers don’t offer these structures because:

• They don’t know them
• They don’t have a property portfolio themselves
• These type of loan facilities require extra paperwork and explanation to clients
• These loans require ongoing client checkups to make sure it is working best

So before applying for a loan or refinance, you should do some homework on your mortgage broker or personal banker and the structure they believe is best for you.

A few good questions to ask your mortgage broker or personal banker are:

• Do you currently own property?
• How many properties do you own?
• How do they structure their own loans?
• How would I benefit from a structure like this?

You may well be shocked by the answers as there is a substantial amount or people who provide advice whom have never owned property, however they advise clients on how to best structure a investment loan, generally the wrong way too.

Who best to advise you on how to structure a loan than a professional property investor? And that’s what everyone of the professional team @ the wHere ? group are; property investors who all have the right structure, based on their property investment goals.

We talk about loan structure a lot when we speak of investment finance. Think of investment finance, much like a blue print for a major building project, without the drawings of where everything should go, the builders would put walls in the wrong place, and no one would end up with the finish product they had anticipated.

There are a number of ways to structure your investment finance, but as always, depending on your personal needs we @ wHere finance recommend any one of the following types of structure;

• All-in-one mortgage
• Line of credit
• Interest in advance
• SMSF Loan

All in one Mortgage
Some All-in-one loans allow you to use your savings and or rent to reduce the interest charged on your home loan.

In basic terms, the bank calculates the interest payable on your loan on a daily basis and charges this monthly. So by having as much savings to offset the amount of debt you have it then reduces the interest payable.

For example, if you have $5000 in savings and have a mortgage of $300,000, then the interest is calculated on $295,000 rather than $300,000. Also known as a transactional or offset loan, the can function by depositing your salary and any rent received from your investment properties into your all-in-one account and withdrawing any required cash via ATM, EFTPOS or credit card. Any leftover funds surplus to your repayment requirements at the end of the month are credited against your home loan balance, reducing the interest payable and paying off your home loan sooner.

An all-in-one home loan suits only disciplined borrowers able to stick to a budget or seasoned investors.

Line of Credit

Line of credit home loans are another popular way to purchase multiple investment properties.

As an alternative to using the equity in your home to purchase your investment properties, you can have a separate line of credit facility for each property. You basically take out a line of credit against your home and use this as a part of a deposit to purchase your investment properties. This is mainly used by experienced investors as it allows them to purchase properties with ease and without the hassle of waiting for the lender to approve their purchase, plus, again reducing their costs by limiting the mortgage insurance payable. Again, like all loan types, it’s important to seek advice from a professional, something the team @ wHere finance can assist you with.

During your interview process with the team @ wHere finance, we refer to your investment plan as “your game plan”. By game plan we refer to your financial and property goals; and how to achieve them?

Interest in advance
Paying interest in advance is just as it says, " you pay the interest for the next 12 months in advance". This type of structure also allows you to claim the interest payable on your tax a year earlier than you would normally be able to. The loan term may range from 1-5 years depending on your lender. Paying interest in advance is only an option for those who are able to afford to pay the loan interest in a lump sum.

The extra money you save or earn because of the type of structure can help you to expand your property portfolio, undertake redevelopment projects, take advantage of the tax benefits of paying your interest in advance, finance renovations on your home, or even top up your superannuation.

SMSF Loan
A self managed super fund is an alternative to having a super fund provider manage your superannuation.

Like anything there are pros and cons, see more about this by visiting our SMSF section.

A self managed super fund loan is a facility set up whereby your Self Managed Super Fund is the borrower. There are only a limited number of lenders who provide these types of loans, and generally the maximum Loan to Value Ration (LVR) is 72% for Residental lending and 58% for commercial lending.

Like to know more?

Contact us to arrange an obligation free consultation.