Loan Tip: Overcoming Cash out Restrictions When Buying Main Residence
This strategy is simple yet often overlooked.
Strategy: When buying a new main residence borrow 80% to acquire it, whether you need to or not.
Bart has $400,000 cash and wants to buy a new main residence for $500,000. He plans to borrow $100,000 and then later set up a LOC to invest.
He borrows $100,000 and settles on the purchase. Then he asks for a $100,000 LOC and the bank starts asking questions. Eventually, after giving a DNA sample Bart is approved, but they want a statement of advice from a financial planner saying that Bart will invest in shares.
Lisa is in the exact same situation. Lisa gets some credit and tax advice and borrows $400,000 to buy her main residence. At application stage she splits the loan appropriately so that at settlement she can pay down 2 loan splits and is left with one split with $100,000 outstanding.
- Lisa had no questions asked about future investment plans,
- Lisa got the lower main residence rates for all of her splits (prob paying 1% less than Bart),
- Lisa isn’t incurring any extra interest or costs, and won’t until she draws on the splits, and
- Lisa has split the loans for tax purposes already.
- Lisa has saved by not needing to pay a financial planner tosatisfy the lender.
In summary, Lisa has overcome the cash out restrictions and gotten a lower interest rate.