Hi Redwing

I don’t want to advertise, but the mob I work for is currently Money Magazine’s Non Bank Lender of the year” (Same award that made ANZ Bank of the year). We are all pretty proud of that .

Yes Home Loans Pty Ltd

Is your mortgage advisor accredited with the “Non Bank Lender of the Year?”
(Money Magazine 2005).

Hi vernon

1/ Don’t bother with a 1 year fixed. You may as well take a “honeymoon” rate for a year then fix and get the advantage of ultra cheap 1 year honeymoons.

The disadvantage of fixed rates

1/ What is what is known as “break costs”. Thats the cost for the lender of redeploying the money at the market rates at the time multiplyed by the term you have left to run on your fixed rate. This occurs if you decide to break out of the loan before the fixed period is up. It could be (and quite often is) thousands.

2/ Usually you cannot make additional payments to the loan during the fixed rate period

3/ You do not have the flexibity of “redraw”

4/ Banks with “offset” accounts give you a “manufactured” flexibility for 2 & 3 but the interest that is offset is just what you would have normally earned in the savings account anyway at 3%.

Advantages

1/ You know exactly how much you are paying every month and don’t have to stay glued to the radio the morning the RBA meet hoping rates have not gone up.

2/ You can use “offset accounts” to “manufacture” some of the flexibility.

Things to consider

A/ How long you are going to hold the property for?

B/ How likely is that to change due to other circumstnaces like losing your job or having a baby?

C/ How much do rates have to go up by and by when before you are better off fixing, and is that likely?

D/ Do you have another mortgage?

Another Options

1/ Consider a longer term and apply the above tests. ie 5, 7 and 10 years

2/ COnsider fixing 1/2 and leaving 1/2 variable. Add the 2 rates and divide by 2 and thats the effective rate you are paying by doing this. It gives you the flexibility of the variable and the security of the fixed. If rates rise, your effective rate only goes up by 1/2 hte rate rise and you still get 1/2 the benefits of the rate fall. You still lose if you pay out early.

The advatages of Interest Only.

1/ Lowest possible mainstream monthly payment.

2/ The whole of the payment is tax deductable on Investment Loans.

3/ With most variable rate IO loans you can make additional payments and “redraw them”

4/ You can “elect” to make extra payments making it a P&I at any time.

5/ Long term the property increases in value and the rent goes up but the loan remains the same. 20 years ago in Sydney if you had bought a $100,000 property and borrowed $80,000 Interest Only (average price and average loan). you would still owe $80,000 but your property would value at $800,000 and rent would be around $650 a week.

The disadvantages

1/ The loan never reduces.

Things to consider

If you have an owner occupied home loan, then definitly go for Interest Only on the Investment loan and use the additional to pay extra off your home loan. (One is Tax deductable, the other is not so clear the one without the tax advantages first).

Hi relliot

I am sure you are a great valuer and my comment was somewhat tounge in cheek and yes there are plenty of good valuers out there. There are also some really bad ones.

The most common arguement I have with them is that what they do is in no way an exact science so when a customer buys a property for say $440K and I get a valuation back at $430K, I am sorry but that is jsut a valuer playing with his doodler. No one can say a property will sell on a certain day with any degree of accuracy for $430 not $440K. The difference can often mean doing or not doing a loan and in extreem cases, the difference between a $5000 Mortgage Insurance Bill or not.

I can understand $400 not $440 but I cannot understand why valuers (not you I am sure) insist on crucifying a deal based on what appears to be just ego.

Thank you for listening, I feel much better now

Yes Home Loans Pty Ltd

Is your mortgage advisor accredited with the “Non Bank Lender of the Year?”
(Money Magazine 2005).

Hi CLueless

Property returns over the last 30 years averaged 10% compunding and kept pace well ahead of inflation. Not sure but I think inflation would have averaged somehwere around 5% over the last 30 years, it is currently in the 3’s and has been for around 10 years.

Rent returns are at a low because we have just come out of a very fast boom. Residential yields just before the boom in Sydney were around 6%.

So, all you can do is go off historical information and take a wild guess. At the end of the day it’s all crystal ball gazing, but I would sleep better at nights knowing I had 2 investment properties rather than non .

Yes Home Loans Pty Ltd

Is your mortgage advisor accredited with the “Non Bank Lender of the Year?”
(Money Magazine 2005).

Sounds like you have a home mortgage as well???

Yes Home Loans Pty Ltd

Is your mortgage advisor accredited with the “Non Bank Lender of the Year?”
(Money Magazine 2005).

Whooo….Hold on Diggo,

While I am in awe of what you have done to date at the tender age of 16, I can tell you that you do have to be 18 to buy a property. You can also talk to a solicitor about ways of buying a property that you inhert at 18 (a number of ways to do this).

Once you have established that, you need to be very careful where and what you buy. It’s like shares, buy a bad stock and you find there are no buyers when you come to sell, or it moves less than the market. You want a property that is liquid. When you put it on the market , it’s going to attract the largest number of buyers. So if for example, you bought a serviced appartment, and then tried later to sell it, you have excluded all those buying a property to live in and now only have investors looking. You want both, you don’t want to exclude anybody, so size, location, condition (or potential) are all important, regardless of the prize range or suburb.

If you plan to hold it for a long time, one small rule of thumb. If over the last 30 years, you added rents and capital gain together around Sydney (same applies more or less to all capital cities), you would have averaged around 10% pa return compounding.

What that means in English – the higher the rent, the less expected Capital gain. Sound a bit like the stock market?

Look at rent as dividends. Infact, rent returns are often refered to as Yields and calculated the same way the company yields are calculated. They are even quoted the same way, as a % return p.a on your investment.

Average rent returns around Sydney at the moment are 4%. Higher out West and less closer to the CBD. So you should get around $4,000 rent for your $100,000 investment, trouble is there is nothing around for $100,000 that you should even be considering as a first investment. I would suggest maybe spend around $250,000 and buy a 1 bedroom appartment around some of the inner west suburbs. Make sure it’s over 50m2 in living space.

It would be great to see where you are in 10 years? DOn’t loose that drive.

Yes Home Loans Pty Ltd

Is your mortgage advisor accredited with the “Non Bank Lender of the Year?”
(Money Magazine 2005).

Hi Anne

Terry is right.

Most lenders will take your guarantee into account for all trustee comapnies you are a director of and the subsequent loans and repayments. They will also take the rental income into consideration which goes a long way towrd helping service the debt.

They will know about the other trusts because creidt enquiries like Baycorp (CRAA) alos cross reference comapny directorships with individual applicants.

If Terry is wrong in his interpretation, then I agree with everyone else, finad another accountant. Provided you can show you have enough equity and the capacity to pay back the loans, lenders do not care how many guarantees or comapnies you set up and borrow through. They treat you all as one individual for the purpose of lending and then do all the legal work (guarntees and indipendent advise etc) to ensure they are protected as though you were all one.

Hope this helps.

Yes Home Loans Pty Ltd

Is your mortgage advisor accredited with the “Non Bank Lender of the Year?”
(Money Magazine 2005).

Hi Danny

Long term rates have no direct bearing wether rates will rise or fall. They are different markets. When rates were 18% in 87/89, fixed rates were cheaper. That was the market prediciting a rate drop but it took 6/7 years to come. This time round, fixed rates are higher that variable rates so the market is predicitng a small rise.

Having said that, what the market predicts is no where near accurate enough to suggest that is where rates are heading (as in 87/89 taking so long to fall).

Yes Home Loans Pty Ltd

Is your mortgage advisor accredited with the “Non Bank Lender of the Year?”
(Money Magazine 2005).