Hi all
A simple concept that I dont seem to be able to get my head around! Currently I have an investment property that has 65k left on the loan (variable rate) which means about $800 a month in repayments. I receive around the the $800 mark each month in rent so I am breaking even
It was suggested to me that refinancing for another 30 years and at a fixed rate for 5 years or so might be a good idea, the repayments would then be around $400 a month making me positive geared. I plan to start contributing more to this loan and expect to have it paid out in the next 2-3 years (with some luck!).
I am also about to purchase a unit for $75k which I will be borrowing 100%.
My confusion is centred around the benefits of refinancing…I can’t understand how it would be beneficial to earn more on the property each month, but pay tax on it at the end of year, and have a LONGER loan term?Please can anyone clear that up for me?
Thanks from a newbie to this site!!
I will explain it to you like melbear did for me.
ok you owe 65k with the rent paying it off (neutrally geared)
say its now worth 100k, you refinance and get 80k (80%)
you pay out existing loan
80,000 – 65,000 = 15,000
now your property is neg geared you will have to pay the difference, throw 5,000 in an account to cover the difference (from the 15k) you are then left with 10k to play with. I wouldnt do this with every property, but i am doing it with one so as to be able to use the capital growth for deposits on other properties which are cf+
hope it helps.Hi kyl_37,
Are you refinancing your loan, or do you mean you are re extending your loan back to over 30 years?
Refinancing and Re-extending your loan are 2 different things.
cheers
s.i.sSave on a regular basis
“People forget that by saving just $3 per day and investing it sensibly over a working life, you’ll end up with around $1 million.”Hi thanks for the replies,
I am refinancing at a fixed rate (currently variable) for a new 30 year period. I am not doing this to get capital for the second property as I have adequate savings for that, but rather I was told that it would be a move that could save me money. I am still a bit confused as to exactly how I would be saving any money with refinancing as the amount owed would be same and payments made to the loan would be less?
Hi Kyl_37,
If I understand you correctly, I am not sure if what you are planning to do is the best option,
You say you will refinance on a 30Year term, fixed for Five years,
But you plan on paying down the loan at a faster rate,
And you are using your own funds to purchase the 2nd IPSome things to consider:
If you fix there may be penalties for paying down the loan sooner,
Fixing may hinder offset opportunities, and pulling equity in the future if needed,
Have you considered a refinance using equity from IP1 to fund deposit for IP 2
The funds pulled from IP 1 should be claimable and IP 2 could be stand alone,
Or if you want to fix have you considered a split 50% fixed 50% variable?
Starting with the end in mind will help to remove problems later on,
Kind Regards
Steven[email protected]
http://www.mobilemortgagemarket.com.au
Ph: 0402483216From a first timer on this forum.
I too am a bit confused about refinancing. When you refinance through the same bank do they give you in cash, the difference between the 80% of the new valuation and the amount of the existing loan owed?
For example we purchased a property nearly 3 years ago for $140,000 which is now valued at over $250,000, how do we go about reducing our debt but still keep the property.
Is it possible to then reinvest that cash back into the loan to lower your debt and repayments, rather than using it as a deposit for another IP. At the moment our 2 IPs are, after about nearly 3 years fixed, nearly neutrally geared. We wish to get them positively geared.
Peter G
Peter G, refinancing is in fact borrowing more money, so if your aim is to reduce your debt, than that is not a good plan for you.
If you use a LOC as part of your refinance, the bank has just given you a big ‘credit card’ up to the loan limit.
If you use a standard loan where the whole thing is redrawn, then yes, you get cash. But you will start paying interest from day one on this money, unlike the LOC, where you will pay interest only on what you withdraw.
If, however, you get the new loan, and have an offset account, and leave the money there until you wish to invest it, you will also not be paying any interest.
Cheers
MelThanks Mel
from Peter G
It was suggested to me that refinancing for another 30 years and at a fixed rate for 5 years or so might be a good idea, the repayments would then be around $400 a month making me positive geared. I plan to start contributing more to this loan and expect to have it paid out in the next 2-3 years (with some luck!).
The topic ‘Anyone else confused with refinancing?’ is closed to new replies.
