Page 64 - Smart Money

Smart Money

you to sell it. I would advise you to speak to an accountant about what is
best for your financial situation. We can give you the figures, too, about
whether you have enough equity and cash and whether it is a good idea
to keep your current home. But you really need to talk to an accountant,
as well.

The bank will look at your financial situation and include your rental
income, because obviously, you are going to be renting it out, and that
helps with serviceability or your ability to afford the loan. But other than
that, they look at it exactly the same way whether you are buying your
first house or your second house. As long as you can afford it, you have the
deposit and you fit the bank’s policy, they’re the main things the bank is
looking for. You can use the equity in your current house and either top up
your current loan, or take the cash and do a stand-alone investment loan.
That way, the two loans aren’t together at the same bank, which makes it
easier if you want to sell one later. You can also cross-collateralise, which
means the bank will take both properties as security, but if you want to
sell one, you need to make sure that the one that the bank is keeping has
enough equity in it, and that is up to the bank to decide. Generally, it is
around 10% or 20% equity.

Key Point
Of all these approaches, I would recommend the stand-alone option.
It’s best not to have them cross-collateralised because if you want to sell
one, the bank needs to do an evaluation on the other property. Then
they have the say on how much money you have to put in to the loan
that remains. When you have a stand-alone loan, you can just sell it, and
as long as the bank gets all their money back, they are happy.

It’s really a good idea not to top up your current loan for the second
property purchase. Yes, you will have only one payment, but when it
comes to tax time, you can only claim the interest on your investment
property, so you need to have the two loans separate. A good broker will
be aware of things like that.

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