Investment property mortgage questions

[YoyoKiwi]

Newbie question here.

With existing 1 owner occupied and 1 residential investment property mortgaged (cross collateralisation) under 1 same bank under personal name. If were to buy another new residential investment property, should we:

1. Still go back to same bank? The bank will take all 3 properties as guarantee for the 3rd investment property. The interest rate might be lower but can't loan much out (will have to pay >20% deposits).
2. Go to another bank for mortgage? The interest might be higher but only that new investment property be mortgaged to the bank. To pay around 20% deposits.
3. Is there any other way for people with tight income source?
4. Should go for Fix or revolving credit for the 2nd investment property?

Please share your knowledge / experience. Wish to pay less deposits with good interest rate.
Thanks.

[KyronGosse]

You want to try and avoid cross collateralisation as much as possible. Also you want your family home to be kept seperate from your IP's. See if you can have your home let go as security, and I would be using a different bank for the next property.

As for fixing or revolving, that is a decision only you can make in relation to your investing goals. I was reading today that ANZ are saying we are at the bottom of the curve for finance and it will only go up from here. I have fixed most of mine in for as long and as cheap as possible.

Also make sure you factor an interest rate rise into your calculations on the 2nd IP

[drelly]

You want to try and avoid cross collateralisation as much as possible. Also you want your family home to be kept seperate from your IP's. See if you can have your home let go as security, and I would be using a different bank for the next property.

As for fixing or revolving, that is a decision only you can make in relation to your investing goals. I was reading today that ANZ are saying we are at the bottom of the curve for finance and it will only go up from here. I have fixed most of mine in for as long and as cheap as possible.

Also make sure you factor an interest rate rise into your calculations on the 2nd IP

I agree with Kyron but unfortunately most banks seem to have cross-collateralisation as a standard term in their mortgage docs. Also, it is quite hard to progress in the early days of investing without using your own home.

On the question of whether or not to fix, I think the most important thing to consider are your own circumstances. How much of a rise could you handle before you started to stress? If it's not much, then fixing is the way to go.

[speights boy]

....... unfortunately most banks seem to have cross-collateralisation as a standard term in their mortgage docs.

(my bolding)

Or, depending on your perspective, fortunately.

[drelly]

Or, depending on your perspective, fortunately.

True... borrowing would be more difficult without it.

[Wayne]

If you have the deposit for each house keep them seperate. I bring my PPOR into the mix when I don't have a deposit (actually I never have a deposit myself) as it is mortgage free and provides the capital.

[Raftcomm]

I would recommend having a chat with an accountant to go through the various pros and cons of your current situation. Alot of property accountants provide a free consultation service for your first visit. Having done that myself, its quite amazing how much information you can get from a single session.

Like others that have already replied, i would advocate spreading your loans across banks rather than placing them with the same one. The phrase " Dont put all your eggs in one basket" often comes up when referring to your mortgages.

[Craig Pope Mortgages]

Hi YoyoKiwi, having been in this situation myself, it's difficult to have a stand alone highly geared investment property eg 95% stand alone without paying higher interest and/or low equity fee (though I did cut a deal on my 95% rental lend). But the benefits are not one bank has all your security. I would recommend raising as little deposit as possible (or 15-20% depending on your equity) against your owner occupied/first rental properties. Then going to a second bank to do a stand alone lend. This is also advantageous should you want to eventually upgrade your current owner occupied property - ie its easier to trade up with just 2 properties cross securitised than 3.
It's a typical situation of pros and cons to using one bank for 3 properties or two banks for 3 properties. You need to assess what is more important to you, (maybe) cheaper rates using just one bank, or paying a little more in rates/low equity fee to enable spreading your security risk.
It's difficult to suggest fix vs float/revolv without a full analysis of your financial situation.

[NovInvestor]

I would:
1) raise RC from first two properties to fund the 20% deposit ( you probably can get like 84.9% finance with BNZ with no low equity premiums).
2) go to another bank to buy the 3rd property, using the RC from 1) as deposit

[nick_auckland]

I would:
1) raise RC from first two properties to fund the 20% deposit ( you probably can get like 84.9% finance with BNZ with no low equity premiums).
2) go to another bank to buy the 3rd property, using the RC from 1) as deposit

my question is even you can pay the 3rd property 20% deposit with RC from first two, the bank will still secure the 80% mortgage to your frist two property, right ? unless your first two property are fully paid off and your income are enough to pay the 80% mortgage for the 3rd property.

[SlyAnimal]

I'd say talk to your personal account manager at your bank regarding what they can do for you if you change to revolving credit. They can likely give you an idea on how much of a limit you'd have with your existing property. Then if you discuss with them the rough range of what you're looking at buying, they can probably tell you how much they could roughly extend your credit by if you purchased the new investment property.

This should give you an idea on how much you have to play around with, as you might want a bit of extra credit left over for renovations or just for a bit of buffer room.

Ask them if they can give you a discount on your floating interest rate when you switch to revolving credit too, they should be able to sort something out for you, which will then make your revolving credit interest rates competitive, or maybe even better, than the fixed rates.

[NovInvestor]

my question is even you can pay the 3rd property 20% deposit with RC from first two, the bank will still secure the 80% mortgage to your frist two property, right ? unless your first two property are fully paid off and your income are enough to pay the 80% mortgage for the 3rd property.

You mean cross-collateral? you can try ask 1st bank to not cross-collateralise the 3rd rental, but they may not lend you then.

Easier just to buy with another bank.

the 80% is secured against the 3rd property you are buying. the 20% is either cash from your RC, or secured against your 1st and 2nd property if you got equity left.

[YoyoKiwi]

Thanks for all your reply. My first 2 properties are under RC now. So, if to go for another bank, planning to take the 20% from the RC from my occupied home as the 1st IP has no enough cash there. In this case, is the interest of the 20% deposit (from my own home RC) - claimable for my 2rd IP mortgage for IRD purposes? I am actually planning to DIY for the IRD submission.

[NovInvestor]

Thanks for all your reply. My first 2 properties are under RC now. So, if to go for another bank, planning to take the 20% from the RC from my occupied home as the 1st IP has no enough cash there. In this case, is the interest of the 20% deposit (from my own home RC) - claimable for my 2rd IP mortgage for IRD purposes? I am actually planning to DIY for the IRD submission.

The interest on the 20% deposit won't be claimable I believe, not until you top up and give yourself back that 20%.