Right loan structure?
Question from Fiona updated on 1st February 2013:
We have just purchased two flats and want to figure out the best way to structure the loan. We currently have existing rental properties - two are table fixed at 6% until 2017 and one is interest only at 5.79% until 2016. The other is with a different bank as an offset account. With the new property there will be one mortgage but two income streams. We don't have a line of credit. Should we be leaning towards a revolving credit loan? Can you have interest only loans with revolving credit? Our properties have all been purchased in mind for superannuation, but I'm a little lost with how we should be structuring our loans.
Our expert Kris Pedersen responded:
You don't mention anywhere if you have an owner occupied property. If you do and there is debt against this you should be paying this debt prior to repaying any investment debt as the personal debt is not deductible while the investment debt is (note that sometimes your accountant may have arranged for some of the personal debt to be restructured as investment debt if you are owed money by the investment business - seek advice from your accountant in regards to this). If you have an owner occupied property I would have a revolving credit facility set up against this into which you should pay an additional funds that you can to build up additional deposit funds and minimise interest costs. If you don't and only have rentals then I recommend having one property which you use to store additional equity at and structure part of this loan as a revolving credit facility. You can have the revloving credit facility on a principal and interest or interest only basis. If you are wanting to invest further you will want to structure this part of the loan to be interest only.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz