Hi Ben

$750K is spending on IP. There are two in mind, first one is a house, with 700m2 land but I don't think I can subdivide it, great location and renovated already. The second one is actually $800K, with 1100m2 of land, and great potential of subdivision, as ample land in the front of the current residence, and it is about 450m2. I should have no problem with street access. 

My current PPOR is only valued at $625K, with $375K loan in it.

Regards

Ferdinand

Hi Richard

Thanks for your advice. Not to overcomplicate matter, we plan to buy another PPOR in 5 years time (consideration is that when we have a primary school kid). Current PPOR will become an IP, same with new IP. My question is this will change any of your advice.

We are bit worried whether we can get loan for future PPOR, because we are looking for 3 bedders house, around $1M. If we don't repay both current PPOR and this IP, assuming we will have $300K of cash in the offset, that we can put as deposit for new PPOR. Is that a viable plan? If both, current PPOR and new IP will still have debt around $475K and $500K, but they will become IPs, what is the net effect on my borrowing power?

Thanks both

I have saving up to 10% of the IP price, I have atm is $50K and I can get up to $75K if I have to. Some properties in my mind are typically units and 2 bedders, with price around $500K. Hence, say it, I have deposit for 10%-15%.

Current PPOR is valued at $625K easily, and loan $375K – hence equity: $250K.

It will be joint application, I checked some borrowing power calc, and I can borrow up to $1.1m before the income of the IP taken into consideration. The only issue probably is that my wife is new to her job, 4 months, but a full time job. She has been always employed for the past 3 years, can be proved from her tax return. I am 4 years in my job. 

Joint income: $140K per year before tax. No dependant.

Please advise further.

Hi Jamie, my PPOR is currently on fixed term, 1 year to go, from 2 years fixed term. I don't think I can inject my saving and redraw,.

Thanks Terry, but I am quite reluctant to change lender, first is because of the hassles, second is because the costs associated with ditching and changing lender, and third because if the number doesn’t turn out to be significant, I want to stay with NAB, have been with them almost all my time in Australia and I’m pretty happy with them.

But maybe worthwhile to wait for fixing the rates till next RBA meeting.

Thanks Terry

I am considering to fix the rates only for a year. Of course, it is everyone’s common sense to think that RBA will drop interest rates. But the question are: how quick? when? will the bank pass it in full (if RBA cut too often)?

Well it is just my thought. As what I mentioned before, I learned two things from last RBA cut. First, it is not an easy decision for RBA to cut interest rates , and second, my bank (NAB) did not pass the cut in full just because they want to protect margin and get $62 million profit (5 basis point difference).

Thanks anyway. I hope apart from the rates, there is no technical flaw with my idea.

Hi Terry

Many thanks for your reply. I still couldn’t understand, if it doesn’t cost me even one dollar, I can go back to SVR – 0.70% + Offset A/C in a year time, I will repay the principal (which is same thing as your suggestion), why 0.66% less interest which translates to $230 less interest expense every month is not a good thing? Forgive me if I’m little bit naive or I don’t know what everyone in this forum knows.

Ferdinand

I am sorry Richard to sound taking advantage from all of you guys. But is that not the purpose of this forum to share knowledge and to provide view and opinion? I might not be Michael’s client at the moment, but in the future, who knows? Be honest I am quite disappointed with my current broker, and he only gives one advice which everyone gives here, IO + Offset A/C without offering any alternative. I understand that it might be the best option for you guys, investment-minded people, but not everyone is same.

I received exactly same question from my best friend in Brisbane, and he is also confused about this IO+Offset A/C, because it is rather an unconventional idea not to repay the principal.

Well, I can’t thank enough to you, Michael for always being available to offer advices here and his generosity or Terry with his straightforward advice during the process of getting my property from the beginning, even until now. But if it is sounding like taking an advantage, then I politely request not to answer my questions.

I am an Accountant in financial services industry but I am still on the way to get my full qualification done and my knowledge sharpened, and I would be happy to share my knowledge in my area of expertise either in taxation and or financial services in the future when I am confident enough with my knowledge for free in this kind of forum.

Guys,

I am back… with same old problem hahaha.. four months have passed now, and I am enjoying a lot the house, slightly further than where I lived before, but transports are great, so not really a big deal.

My experience is very difficult to maintain motivation with offset account, especially when Christmas is coming. I previously forecasted $4,500 extra repayment made on the top of interest, if I use normal P+I loan. But with the I only + Offset A/C, I only manage to save $2,300 which is only 50% of the target.

The current 2 year fixed rate is 6.14% (Homeside) is tempting me again. Currently I am paying SVR 6.80%. My observation from last interest rate cut where it was a very difficult decision made by RBA and NAB only passed 0.2%, it takes 3 x 0.25% interest rate cut to be equal with the 6.14% offered on 2 year-fixed rate.

And the game changer is that I have agreed with my wife to pay off the principal everytime we accumulated $20,000 in offset A/C, that means offset A/C will not be useful at all. We think that we prefer to take benefit $230 interest expense straightaway and hit the loan hardly. I am anticipating to receive $40,000 lump-sum mid next year.

I know that IO + Offset A/C is good for discipline people with investment oriented mind. But it seems that is not the case with me and my wife. My wife is quite reluctant to invest in property, I mean we want to have 2-3 investment properties, but not 10-15. We also prefer to buy a business if we have extra money in the future.

So, back to my question, with my expectation, goal and past experience ( at least 4 months), is 2-year fixed rate 6.14%, RIGHT FOR ME?

Additional information: I’m on 80% LVR and $420,000 total mortgage

Thanks

Ferdinand

Unlikely up, but could be flat, has been for a while