Tips on how to minimise tax through loan structuring
Announcement posted by Chan & Naylor 29 May 2017
When investing, putting all your eggs in one basket is a no no and this includes dealing with banks. You should diversify lenders because when a lender knows too much information about you, it may have control over your business and personal investments. You may be able to maximise your borrowing capacity better by using multiple lenders as well. It keeps banks from being complacent if they don't have all of your business. Not to mention, bank property valuations often vary significantly from one another and having a relationship with multiple banks will let you maximise your borrowable equity.
Most investors are long-term borrowers because of the advantages of holding a property for a long time. You should fix mortgage interest rates from time to time and stagger the expiry of fixed rates. This will allow you to be more flexible in reviewing your interest rate management at regular intervals. Early payouts come with exit penalties and your loan structure should consider this to eliminate or minimise penalties.
You should also avoid cross-securisation, where the lender uses more than one property as security for a loan. An example of this is when you have an investment loan secured by your home and investment property. Cross-securisation does not allow you to maximise borrowable equity. If you avoid it, you can determine the properties you have to revalue and when to.
Cross-securisation also ties you to a specific lender and reduces your flexibility. If your properties are secured separately, you may be able to refinance a property to a new lender and allow you to maximise your borrowing capacity. Cross-securisation won't let you control over sales proceeds which the bank can control and force you to contribute to repaying debts of their choice.
For more information about loan structuring, taxes and investments in Australia, contact a Specialist to discuss your particular circumstances.