Page 15 - Loan Structure Solutions

your finances). Why? Well it gives you a greater buffer that will allow
you to accommodate unplanned events or opportunities. There have
been times when we have recommended clients borrow more than
their immediate needs (but not draw the money down of course – so no
interest payable) and whilst this didn’t cost any extra, clients have
initially questioned if it was in fact necessary. I can assure you that on
many occasions our approach (in time) has been proven to be very
valuable and the higher credit limit has assisted in accommodating
unexpected changes and opportunities. It’s proved to be very valuable
advice. Therefore, my advice to investors is to actively revalue their
properties every 1 to 2 years and, either release a property (i.e. take
the title back from the bank), or where that’s not possible or practical,
increase the credit limit to 80% of the new valuation thereby “locking” in
more equity. I have seen this approach work perfectly when we
revalued a client’s property portfolio and increased his loan credit limits
to 80% in late 2007 (the market hit a new median price peak). Then,
about 2 years later, the market hit a low (in the heart of the Global
Financial Crisis) and the client was able to access equity that was
locked in at the peak and invest it in a more subdued market. If we had
not revalued in 2007 (even when he had no plans to use the money)
and waited until 2009, his borrowable equity position would have been
very different.

10) Interest only or principal & interest repayments?
In most circumstance it makes
sense to set up a loan on interest
only repayments. The reason is
simply because it often affords you
the flexibility to choose between the
two. That is, the vast majority of
interest only loans allow you to
make principal (regular and irreg-
ular) repayments at any time.
Therefore, you can (normally) make
principal and interest repayments
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