We have just settled on our house and land mortgage with the commonwealth bank for our own dream home which is just being built. We now want to invest and have access to about 10k. We have a combined income of 110k pa. Do we have to wait before we can apply for a second mortgage? Do you suggest a good one? Our investment plans are to own 100+ properties within the next ten years so we can retire by age 40
AJ Carter-O’Sullivan
Hi Wormit,
There are two primary issues a bank considers when determining how much you can borrow.
Initially they consider your ability to meet any loan repayments (serviceability or DSR).
Typically banks get uncomfortable when your total repayments reach around 30-35% of your gross income. In determining this figure banks will consider existing loans and also your credit cards.
The other aspect banks consider is the loan value ratio (LVR). Here the bank will compare the total value of your assets with your outstanding loan commitments. Typically banks will lend up to 80% (higher if you are prepared to pay loan mortgage insurance).
In your situation you have only given your income level without providing any reference to the value of your home nor the outstanding loan balance – as such you are best running your figures past a mortgage broker as they will be able to fit your individual situation into a bank model that best fits to determine your borrowing capacity.
At the moment you only have $10K in cash free but you may also have equity in your unfinished house which could also be used to finance deposits on investment properties.
I would be wary of using your $10k towards a deposit as this money may be very useful to help finish off your house or to put in an offset account to reduce your monthly interest bill on your house.
Derek
[email protected]Read my comments? Think I can help you? PM or email me.
However there is no requirement to wait any minimum period before a next purchase.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks Derek, your advice is proving invaluable. Will contact a broker asap. The 10k is over and above the 15k we have saved for finishing off the house – but I like the idea of an offset account and using equity to fund an IP. I’m under the impression you have to wait 6 months after completion before you can get a re valuation on a newly built property. Is this correct? Also Whats your view on commercial property?
AJ Carter-O’Sullivan
Commercial property requires 30% down as banks will only lend on 70%. Also with the market slackening off a bit, you PPOR (Prinicpal Place of Residence) might not be valued as high as you need/like, therefor I would make sure I could redraw the $10K any time you needed it. Although banks like to revalue in 6 months blocks, if have seen them revalue in Syd, in 3 month blocks (during the RE boom).
Rgds.
Lucifer_auHi Wormit,
As Lucifer has indicated there are some specialised issues to be considered when undertaking commercial investments. This is a highly specialised area and needs thorough research – a better place (in my opinion is solid residential) to start as people always need somewhere to live whereas in times of economic doom and gloom businesses are not as secure unless you can find a solid long term proven tenant.
When choosing your broker ensure they are investors too – it is to your advantage to slow down a bit and ensure the foundation structures are right from the beginning. No need to invur unnecessary expenses which can hold you back on your investment journey.
A good broker will also be able to discuss options such as offset accounts, revaluations, structure etc. I have a recommend in Perth if you wish to use their services drop me a PM.
PS there is no need to rush – property is not a get rich quick vehicle.
Derek
[email protected]Read my comments? Think I can help you? PM or email me.
Hi guys.. something I am not clear on,
if you have cash sitting in an offset account, will lenders consider this as equity? or will they only look at the principal you have paid?
thanks[biggrin]
HHH
In this case HHH:
Equity = Value of house – (loan – offset)
An example would be a offset loan with a current balance of 120,000 and 15,000 in the offset account. The house was valued at 250,000.
Equity = 250,000 – (120,000 – 15,000) = 145,000
Just remember the money in the offset account is basically money that would otherwise be in a Savings Account.
I assume you meant “+ 15000” in your example?[cap]
If that is the case then cool, I would not have thought so as the money could be gone tomorrow, where as “real” equity in a home is not that easy to “lose” – the lenders risk would be increased if they treated the cash sitting in an offset account as equity.
It seems different to me than savings as typically those savings would be taken by the bank as say the deposit, yet the money in the offset would be staying, potentially even spent?
HHH
Originally posted by HHH:I assume you meant “+ 15000” in your example?[cap]
Maths has a law called BOMDAS (or BODMSA, it doesn’t matter much the MD and SA components of the law whichever appears first in the list in an equation) Brackets of Multiplication, Division, Addition and Subtraction. Your offset account in my example is used to reduce the loan amount (120,000). The result of the transaction inside the brackets left you with 105,000 and meaning you had 145,000 leftover from the 250,000.
If that is the case then cool, I would not have thought so as the money could be gone tomorrow, where as “real” equity in a home is not that easy to “lose” – the lenders risk would be increased if they treated the cash sitting in an offset account as equity.It seems different to me than savings as typically those savings would be taken by the bank as say the deposit, yet the money in the offset would be staying, potentially even spent?
HHH
The difference between an Offset and saving is not alot. One gets paid interest (supposedly) on the amount in the account but the holder still have free access to draw money whenever they like and the other definitely (provided you don’t go below say 1,500 – 2,000 in hte account) saves interest being charged on the loan for the time the money is in the account, the holder still has free access to draw money whenever they like.
Interest on savings accounts will get taxed but the interest saved by using an offset account cannot be touched by the government. [thumbsupanim]
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