Structuring Your Assets

Our Experts Answer:

I would be recommending that you leverage your current property as high as possible without incurring low equity premiums or being required to make principal and interest payments against the rental property. This means that you are gearing it to about 80% meaning that you will release $103k (80% of the property value of $235k = $188k, $188k – the current mortgage of $85k = $103k) and then use this to reduce the mortgage on the new property that you are purchasing.

Speak to a good advisor in regards to what the best structures are to use for both properties as with the purpose of your current property changing you may be advised to use a different entity for it moving forward. If your plans are to reduce debt as quickly as possible then go interest only on the rental property and pay as much as possible towards the owner occupied personal debt.

Whether you are looking at reducing debt quickly or investing more I would recommend the usage of a revolving credit facility for at least part of the mortgage against your new owner occupied dwelling and direct surplus cash proceeds towards this. Also I strongly recommend for asset protection reasons use a different bank for the investment property than you do for your owner occupied property.

Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.propertyfs.co.nz