Regarding the FHOG, you are not restricted to purchase a 500k property. There are discounts up to 600k but these reduce. Check http://www.fhog.info.

Regarding the amount you are allowed to borrow, this is directly related to the property you will be buying. If you are intent on avoiding mortgage insurance (or similar fees), you would only be able to borrow 80% of each property value.

For example:

Property 1…
$500,000 purchase price
$400,000 loan to avoid mortgage insurance
$100,000 deposit
$??? additional fees required (should be less than $2,000 assuming FHOG applies on this property)

Property 2
$250,000 purchase price
$200,000 loan to avoid mortgage insurance
$50,000 deposit
$12,500 additional fees required assuming FHOG already used (about 5% of purchase price as a worst case scenario)

Your total loans here would be $600,000. Although you would qualify for additional finance, unless you want to pay mortgage insurance, you would not be able to access it. You might also find that you run out of deposit and closing cost money before you run out of ability to borrow.

Also, with each purchase, you receive rental income. This further increases your ability to borrow but you will still have the deposit money problem.

The Mortgage Adviser

LOC Advantages
– Loan is perpetual (but the average loan life is less than 4 years so who cares)
– Interest can be capitalised (but the capitalisaed interest is not deductible so who cares)

LOC Disadvantages
– Higher interest rate
– Higher ongoing fees and charges
– Repayments must go into the actual loan

Offset Advantages
– Lower interest rate
– Lower ongoing fees and charges
– Only interest repayments go into the loan if interest only
– Offset account can work as a fully transactional bank account

Offset Disadvantages
– Not perpetual (who cares – see above)
– Interest repayments must be made

As you can see, I am not a fan of using a LOC when there is non-deductible debt in the loan portfolio.

A huge benefit of the interest only loan with offset account structure on your PPOR is that when you move PPOR, you just take the cash out of the offset account and the whole loan is deductible because you never actually made any principal repayments.

I would also talk to an accountant about buying your PPOR in a company or trust name so all your debt is deductible.

Let me know if you need further info.

The Mortgage Adviser

Hopefully we get to have a vote before the ‘wrong’ person is made a moderator!

The Mortgage Adviser

It is good to see you posting!!! Welcome to the dark side…

You said your ‘Penruff’ investment almost pays for itself but would be difficult to sell for a substantial capital gain.

If you are stuck, I would suggest changing your PPOR loan to interest only and attaching an offset account. The main risk here is over-spending as you see lots of dollars in your account. If you are good with money, the benefits far outweigh this risk.

You have all your wages and rental income put straight into the offset account. You have your investment loan and other bills paid via direct debit from the investment loan on the very last day required. If you have some excess income each month, the amount required to pay on your PPOR will reduce if it is interest only and your cashflow position will begin to improve.

If you can afford to make all payments now, you will do well with this slight structural change to your loans. This will give you lots of time to consider various options or obtain a better price for your home. You might even be able to sell it to the long-term tenant with some sort of ‘creative idea’ that someone here may be able to help you with.

Other benefits of this structure are that if and when you decide to move again, you just withdraw the funds from your offset account and the whole loan will be deductible, If you want to pay it off, you just transfer the money from the offset to the loan and if you get in some financial trouble, you have cash available (only for emergency).

There is also no restriction on how much you can pay so you can increase payments at any time if you feel more comfortable doing this.

The Mortgage Adviser

I would say that Agent is one of the most honest Agents I have ever heard. They don’t get paid unless they sell so if he is telling you not to sell, he has your interest at heart in my opinion.

There are ways of improving cashflow using appropriate loan structuring. How are yours set up regarding payments etc. Is your PPOR interest only with an offset account?

The Mortgage Adviser

You don’t highlight what you want and then click ‘QUOTE’. You need to click quote first and it takes the whole thing and then you delete the words you don’t want. You have to leave the HTML coding which it the stuff at the start and the end of the message that appears in the [ ] brackets.

Try again.

The Mortgage Adviser

There is a ‘QUOTE’ button at the bottom of every post. If you press it, a window will open up with the message contained in HTML code. You type your message below this and your signature is automatically attached when you submit your reply.

It gets very annoying if you press quote and reprint the whole message when you are replying so taking out the section you want to refer to is best. This is done by clicking the quote button in the message where the information you want is attached and delete all irrelevant information between the HTML code.

The code that must be at the start of a ‘quote’ is [ q u o t e ] and at the end you need to have [ / q u o t e ]. Notice that I left spaces between all characters so you could see the code. With no spaces, it will show a different coloured quote box.

For all the other stuff like bold print, etc, you need to use ‘ADD REPLY’ instead of ‘FAST REPLY’. You will see some tools at the top of the message entry box. You highlight the text with your mouse that you want to edit and select the tool to edit – eg: the ‘b’ button for bold print.

Try it out in this thread.

The Mortgage Adviser

I put forward making Dazz our newest Mod. Any seconder???

Don’t worry Dazz, I won’t object to being edited, deleted or banned by you.

The Mortgage Adviser

You don’t have to keep 20% equity in the first property. You only do this to avoid mortgage insurance or higher interest rates.

My point is that 40k does not turn into a 200k loan at any time. You need to know the purchase price and LVR of the next property to find out what the loan is going to be. Everything is pinned to the property values.

The Mortgage Adviser