Dear Friends,
I would really appreciate the advice of other forum members regarding our current situation. We are drowning in debt at the moment with a $125,000 home loan at 6.56%, a $15,000 car loan at 10.95% and a personal loan of $20,000 at 11.7%. I earn a salary of $42,500 per year. We are late with ALL of our bills and loan repayments, however, we have no defaults on our credit history (So far!).The obvious thing to do is refinance, but due to our poor repayment record we will have to go through an alternative lender. We are possibily looking to refinance with Bluestone Mortgage at a rate of between 7.5 – 9.5%. I believe that the value of our property in Brisbane will value at around $250,000. I was hoping to be able to refinance AND get some extra funds to purchase our first IP, +vely geared of course.
With the interest rate higher than average, is it foolish of me to borrow extra funds to purchase an IP. Your thoughts/ suggestions would be GREATLY appreciated. I would like to live a stress free life without the concern of money worries.
Many Thanks.
I’d put my head down and arse up to get rid of the car and personal loans first of all, then reassess from there, but I’m conservative… I wouldn’t be getting myself into even more debt if I was struggling already… a cf+ IP isn’t neccesarily the answer to your problem. I’d have a look at your spending habits and get those in order…
cheers, have a good one,
rHi Fitzman
You are paying 125k @ 6.56% interest 8,200 PA
15k @ 10.95% Interest 1,642
20k @ 11.7% interest 2,340Total interest 12,172 PA
If you refinanced your home with Homepath
and the valuation was 250K @ 80% finance you get 200,000 the interest repayment is 5.65% so you pay 11,300 interest and have 40,000 to invest.But i would not use that money 40K until you get control of your spending, the personal debt of 20k and 15k car you have overspent more than you make. You are living beyond your means it appears.
Put the 40k back on your mortgage and the interest bill is only 9,040 you save over 3000 every year.
westanHi fizman
Sorry i’ve repeated some of Richmond’s thought i was writing while he posted his reply
westanBased on valuation, you should be able to borrow 200,000 (ie 80%of value)on your home, pay out all your bad debts.
But I agree, try and establish a bit of a savings record.
Your wage is not that high, so you need to be careful with cashlow.
Another loan means, more expense and repayment, there may be rental vacancy, increase interest rates etc.
Maybe give yourself a few months of reduced spending and if you can get by, try then.
Everyone is jumping on the bandwagon and maybe you feel you are missing out, but you have to be able to sleep well at night and there will always be opportunities.Thankyou for the valuable input.
westan, In regards to Homepath, would they look at us with a poor history of home loan repayment??I didn’t want to get into the specifics of our situation, but in defence of myself, the personal loan was our “deposit” for the home loan, so essentially we borrowed 100% of the loan for our home.
With the car, I do alot of travelling, so we thought it wise to get a reliable car instead of a buzz box.
You are all correct by saying that we need to seriously tighten the belt.
cut up your credit cards, sell the car, in fact sell off any luxuries you recently bought. buy a cheap car, cut up your credit cards (you obviously have a spending problem) and look for a second job.
you could refinance, but thats not going to save you when interest rates start climbing. try to eliminate the debt altogether first. you need to take serious action NOW. accept you are in the poo, and take some short term lifestyle cuts until you clear some of this debt. not sure where you live but might be good idea to sell house and rent if you are in sydney or melbourne.howdy again fizman… please don’t feel as though you have to defend yourself… I hope you didn’t think I or anyone else was attacking or too critical, just trying to help mate [
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I’d still concentrate on reducing the debt you already have…all the best
rHello Fizman,
I would be re-financing as quick as I could, as you are certainly doing things the hard way, however, I’d really consider selling the house and renting for a while.
I would either cut up the credit card, or if you can’t do that, lock it away for an absolute emergency – No cheating..[
]Start using a Money Diary. Enter your weekly wages on a calander or spreadsheet, and list all of your daily & weekly expenses. Religiously write down and account for every cent that you are spending. Do this for 12 months. It can make an amazing difference to see what you actually earn, and what you are actually spending money on.
The last thing I would be doing at the moment is buying an IP. Interest rates are on the way up, and the last thing you need is a +ve cashflow ppty, to turn -ve, because of interest rate hikes. Also, properties are overpriced at the moment, it is a sellers market. Don’t get caught up in the hype about property investing. All investments can be risky. Please take care and get your finances in order first.
Best of luck for the future, you CAN do it!![
]Del
Hi Fizman
i don’t know about Homepath but see how you go. If they wont find someone else whose rates are low.
I want to put another view forward.
I wouldn’t sell your home at all. I think you can afford to keep it. If you sell you have costs
Agent fees Guess (i’ve never sold a property worth that much) $6,000, moving cost 1000, etc Then when you want to buy again Stamp Duty say $5,000. It starts to add up. The market would need to drop by 5% and not rise again before you buy back in. The risk is that if the market doesn’t drop you may never get back in. Stay put if you refinanced put that extra 3000 onto the loan even if rates rise you will be ahead. I don’t think they will not for a long time if they rise too much it will send the economy into nose dive. Your not in such a bad position you have 80,000 worth of equity in your home even after you refinance just for the $160,000.
westanHi Fizman
If you are behind in your repayments, then it will be hard to refinance with a traditional lender. You will have to go with one of the non conforming like Bluestone, Liberty, etc. Depending on how ‘bad’ you have been the rates will vary. You generally only need to show 6 months of statements when refiancing, so if you can get up todate and stay that way for 6 months, and then refinance you may save up to 3% on the interest rate.
Of course you could also refinance now with a non conforming lender, and then refinance out of it asap, but there would be break costs, and with Bulestone these can be heavy (up to 4% of the loan from memory).
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Fizman,
Don’t you just hate it when the debts sneak up! As another broker looking at your info I agree traditional lenders will not touch you at the moment. My 2 cents worth:
– don’t sell the house
– seriously consider selling the car and getting whatever you can afford outright (ie Bomb)
– knock over the personal debt asap (banks hate them cos they are basically proof you’re not a saver AND there’s no security on offer)
– and Terry’s suggestion of accumulating 6 months of On-Time payments against the mortgage, without that you are a sitting duck for huge interest rates on a refinance.
– ONLY refinance at the huge rate hike to invest IF you can find a steal with a 30%++ return from day one.Good luck [
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MelFirst off, Don’t go with Bluestone, other lenders are cheaper interest rates in the non-conforming market. Bluestone is generally the dearest and has the highest break fees.
Secondally, you’ll find it pretty hard refinancing with a conforming lender (ie Homepath)due to the late repayments with all of your current loans. They generally won’t want to know you. Generally LMI will decline the loan.
However, if you lend only up to 80% LVR, you may be able to get away with it,but don’t count on it. However there is a lender who caters for both conforming loans and non-conforming. Their interest rate is 6.6%. Your best shot really, to recieve a decent interest rate. Then, worst case,(if declined) apply through non-conforming loan.
Only up-front fee involved with this lender; is valuation on conditional approval, therefore you already know whether to proceed or not, this is when the funds are required.
Conditional approval- generally is subject to valuation to recieve Formal approval.
Hi there Fizman,
There is a lot of good information there and possibly you could fine tune it to your circumstance by utilizing your accountant. Write down all the suggestions and present them for another opinion. Your accountant should have a pretty good idea of what your situation is.
It is great to see that you are trying to remedy the cause. This will help for future investing.
Good luck,
SpiderHi Fizman,
You’ve been given some great options here. But it really comes down to you. Digest the information, decide which path to take, make a plan and stick to it.
Once you’ve managed to sort this out you’ll be in a much stronger position for future investments.
Only you can make it work.
Rod.
Thankyou EVERYONE for you input and interest in our situation. I greatly appreciate everyones input and thoughts.
I will keep you guys up to date as to how we go. Keep an eye out for my new book soon to be released ” 130 to 0 Properties PLUS $160,000 debt in 35 days”
Again Many Thanks for your help.
Hi Fizman,
interesting situation you have there. Interesting to the point that a lot of people are where you are at. I’d say that the people on this forum that are actually investing have also got their spending in check!
Certainly persue the refiance options, however you may also like to look at your spending as previously advised. If you need help in this area check out what a company by the name of “The Geyer Group” can do for you. Financial coaching, loans, budgets etc. Their phone number is 1300-882-848.
Remember, this is should be the last option, not the first port of call.
Cheers,
Marco
Fizman,
I assume you are paying P&I on your Home Loan – if so, then this virtually negates any plans of buying property until some other things change.
I have figured that you are paying around $1220 per month – and that is MORE than 30% of your gross wage. BUT, if you were able to borrow another $35k at Interest Only, (and use it to pay off the other loans) then your Monthly outgoings would reduce by around $100 per month.
Still not great, and you are still above 30% of your wage – so, it may not happen.
Thoughts:-
1. Is your Brisbane property likely to grow in value over the next year or two?
2. Can you rent for cheaper than $265 per week? (Which is the amount you will be paying AFTER the refinance)
3. Can you sell your car, and buy a cheaper one (this could make a large difference to your weekly cashflow).
4. As others have said, can you take another (second) job, or otherwise consolidate.The main thing is, it appears you are probably too indebted to proceed with other property, so battening down the hatches, and making your current situation better, is probably preferable.
With an alternative lender, I can’t see too many gains for you (especially with the higher interest rates) so do your best to have an ordinary lender say “Yes”.
Good luck,
Benny
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