Loan Structuring: Set It Up Right From Day One

The short answer

Two people can borrow the same amount, at the same rate, and end up in very different positions because of how their loans are structured.

The right structure protects your flexibility, your tax position and your future borrowing power. Getting it right from day one is far easier than fixing it later.

Standalone vs cross-collateralised

• Standalone: each property secures its own loan.
• Cross-collateralised: two or more properties secure your loans together, usually with one lender.

Where possible, it’s ideal to leave your properties uncrossed. Standalone loans give you flexibility and freedom to sell, refinance or move one loan without affecting the others.

When properties are crossed, the lender has more control. Selling or refinancing one property can trigger revaluations of all of them, and the lender may require part of the sale proceeds to stay with them.

Example: Ben owns his home and an investment property, both crossed with one lender. When he sells the investment, the lender revalues his home and holds back part of the sale proceeds. Had the loans been standalone, the sale would only have affected the investment loan.

Split by purpose

Set up a separate loan split for each purpose: your home, each investment, and any equity release. Never mix personal and investment borrowing in the same split.

This keeps your records clean, protects your tax deductions, and makes it easy to see exactly what each debt is for.

Fixed and variable splits

Within each purpose, you can also split between fixed and variable. Fixing part of the loan gives you repayment certainty, while the variable part keeps your offset, extra repayments and flexibility. See our fixed vs variable lesson for more.

Where the offset goes, and IO vs P&I

If you have both a home loan and investment loans:

• Offset against your home loan first: home loan interest isn’t tax deductible, so reducing it saves you the most.
• P&I on your home, IO on investments: paying down your non-deductible home loan while keeping deductible investment debt on interest only is a common, tax-effective approach.

See our P&I vs interest only lesson for the full explanation, and check the details with your accountant.

Spreading across lenders

Holding all your loans with one lender can feel simple, but it means relying on that lender’s policy for every future move. Spreading loans across lenders, where it suits, keeps you less dependent on any one lender and keeps more doors open as your portfolio grows.

Ownership

Whose name a property is in, or whether it’s held in a trust or company, affects your tax, your borrowing capacity and your future options. It’s much harder to change later, so get advice from your accountant before you buy.

Debt recycling

Debt recycling is a strategy to gradually convert non-deductible home loan debt into tax-deductible investment debt.

How it works: you pay down your home loan, then borrow back the same amount in a separate split and use it to buy income-producing investments, such as shares or property. Over time, your non-deductible debt shrinks while your deductible debt grows.

It must fit the correct purpose. The borrowed funds need to be used only for an income-producing investment, and kept in their own split. Using any of it for personal spending can mix the purposes and put your deductions at risk.

Debt recycling isn’t right for everyone. It involves investment risk, and it should be planned with your accountant and, where relevant, a financial adviser.

Foundations first

Loan structure is like the foundations of a house. You never see them once the house is built, but get them wrong and everything above starts to crack.

We help you lay them right. With access to over 40 lenders, our team of lending specialists can structure your loans for flexibility and tax efficiency from day one, so you can focus on the most important part: living your life.

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General information only. This article does not consider your objectives, financial situation or needs and is not credit, financial or tax advice. Seek advice from a licensed credit adviser, your accountant and, where relevant, a financial adviser before acting. Insight Property Finance.