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Thanks Nos1, and of course that's next months, not next moths… blasted fat fingers.
Gidday Julito,
Firstly, the rate you have is okay if the loan is full featured, but it's a shagging if it's just a basic loan.
You can get a number of pretty good pro-packs for similar money and less. Most of these would execute your 'top up' for a couple of hundred dollars, so I am guessing you're on some kind of basic or intro (which is are virtually all basics with some honey for the bees).
However the most important step to consider taking is having your property professionally valued before you do anything. (i.e you pay a licensed valuer vs. getting a real estate agent to do a 'free' property appraisal)
This gives you a more solid feel for just how much equity you have realised and will be able to release. This number will be a key driver to many decisions including switching lenders, how much you can buy for etc. so it is a good starting point.
"Another general rule should be to write down the value of offset features for investment based borrowings, because there is no tax advantage, so you are only reaping the spread (which, admittedly, has been getting fatter over the last 18 months)."
Sorry, what I meant was to make sure you don't get sold too heavily on offset features/facilities for investment borrowings.
Offset facilities (they have a few different names) reduce your loan balance for the purpose of interest calculations, which means less interest is due if you have funds stored in an offset facility.
As an investor, interest is a tax deductible expense, which means that money in an offset account reduces your tax deductions, which for most people, is not the name of the game and this is especially true if you have an interest charging personal debt.
If you can wait a month, I've given a more detailed explanation in next months Your Investment Property Magazine (sorry I hope this doesn't break advertising rules… it's not my magazine though!). Next moth being September cover date, edition 26).
Gidday Nos1,
As I brace myself for the newbie flaming offer the following thoughts (new to this site, 22+ years in property).
There is no particular loan product that can be generally promoted as the ideal for either of these strategies.
However there are probably several needs that arise from your individual strategy, which leads to turning certain features on or off. This defines a loans structure.Once you have the structure right, it rules in or rule out different loan and lender combinations. Then all you have to do is crunch the costs based on your view.
One general rule you can apply to a buy & sell is to factor in any Deferred Establishment Fees, Early Repayment Penalties (and whatever else the lenders like to call them) that are likely to kick in based on your view i.e. gear then sell within 2 years. That is unless you plan on rolling that debt to another asset – in whcih case, you need portability and should factor in the portability fee.
Another general rule should be to write down the value of offset features for investment based borrowings, because there is no tax advantage, so you are only reaping the spread (which, admittedly, has been getting fatter over the last 18 months).
Anyone who tries to tell you otherwise is a debt merchant trying to sell you some kind of loan.
