I was also just doing some further calcs was thinking…

even though we will pay $2000 more LMI if we keep the first loan at 80% LVR and have the second at 90%, when or if we eventually move into the 2nd IP and make it our PPOR, the interest on the LOC we used for the deposit is no longer tax deductible and therefore we would be only paying $1960/year ($28,000 LOC at 7% interest) compared to $4760/yr ($68,000 LOC) if used the extra 10%….

hmmm so much to think about! Am i over analysing it!!?? 

Ok, i'm aiming for the buy and hold strategy too so thats why i'm looking at this prop – it is 10Km from the brisbane CBD so i think we will get some good cap growth out of it in years to come – not to mention a good rental yield.

So we went to an inspection today for a unit in our current IP's building complex, asking for offers over $415K (it is exactly the same layout except for a small balcony off the 2nd bedroom) and other units have sold this year for $400K and $405K. So i'm hoping the bank will value our IP at $400K. So…

Our current loan amount is $292K.  So if we increased our current loan to 90% LVR (i know this may be risky but its easily servicable) using LOC we would have 68K to put towards the new loan and pay $5,580 LMI.

Then, together with our deposit of $30K, we will have $98K to put toward a $440K property

So borrowing $456K (inc costs)
Less $98K
Brings the total loan amount to $358K, + $2200 LMI (81% LVR)

So in the end, we'll have one loan at 90% LVR and the other at 81% LVR with total LMI payable $7780.

Does anyone see any issues with this scenario??

oh ok, so if thats the case Richard, and we get a separate loan, will we still be able to borrow that amount or will it reduce our borrowing power?

yeah that makes sense. Thanks for the advice Terry!  

just another annoying question

would use suggest choosing a variable rate loan with an offset account over a fixed rate without an offset for a PPOR mortgage? i suppose it would depend on the amount of extra funds we plan to put into the account opposed to the extra interest we will be charged if rate increase…. oh the decisions!

Cheers,

Kyla

Hi Terry,

I have considered that as well but how will we go about using the equity to reduce the amount of the mortgage? is that what re-financing is for? sorry, im a bit of a newbie!

Ok thanks guys, i thought so!

She is also considering building a 'live-in garage/granny flat' in the back yard with it own street entry to rent out.

1. am i correct in saying that the interest on the money she borrows to build the flat will be tax deductible because its an investment?

2. she also thought about subdividing the the property in order to have its own electricity and water supply however it was apparently going to cost 60k to get approved before the costs of connecting separate power and water supplies. What are your thoughts on this plan?

Cheers!

Thanks everyone! I think we will end up having to put the funds in a term deposit account. We should probably hit the book shops this weekend too! Actually imugli, i made some enquiries with the NSW office of state revenue before we purchased the unit and apparently, if we never reside in the investment property, we are still eligible for the FHOG when it comes time to purchase our PPOR… i was pretty surprised to hear that actually, i dont think many people realise it.

thanks Imugli,
I realise now that we should have chosen a loan with the option of an off set account but unfortunetly it doesnt come with the fixed rate loan so until it changes to a variable rate in 2 years time, what should we do with the extra funds?? I also realise that we should have gone with a variable rate from the start too! Hind sight is a wonderful thing!!