I have recently brought a property and plan to live in it for about 8 month to a year, it is an apartment complext brought for $320,000 with $250,000 owing on the mortgage. The property is fullyfurnished executive style.
My plan in the near future is to move out and lrent it out for executive rental which I have spoke to the management and said will achieve $500-600 rent pw.
I would like to refinance the current property so that I can recycle the my original deposit of $70,000, so that I can use for the new deposit of the second property. I have been told that if I do so than I might have to pay mortage insurance for the the first property that I currently own. Hopefully the first property will pay for itself after it has been refinanced.
Is it true that i will have to pay for mortgage insurance?
Is there a better way or how to achieve the second property quicker?If you borrow more than 80% of the value, then you would have to pay mortgage insurance – usually.
80% of 320K = $256K. So if you increased you loan to more than this, then LMI is payable.
However, if you unit increases in value, so does this figure. ie 80% of the value.
You can also buy a new property without increasing your loan. You can use this property as additional security for the new one. (cross collateralising the loan). If this case you can borrow, in total up to 80% of the combined value of both properties without paying LMI.
Terryw
Discover Home Loans
Parramatta
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Originally posted by Terryw:You can also buy a new property without increasing your loan. You can use this property as additional security for the new one. (cross collateralising the loan). If this case you can borrow, in total up to 80% of the combined value of both properties without paying LMI.
Terryw
Discover Home Loans
Parramatta
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Just send me a blank email, with “subscribe†in subject line.Could you please explain in detail how I can do this? So if I go this route I will not have to refinance the first property to realease the cash to use as the deposit for the second property?
Hey there…
Cross colateralising is not without Risk …. in the fact that you are resting all your eggs on 2 properties… os if one turns pear shaped…. the ohter can be also sold or called on by the lender as it is used a security to secure the other loan….
This is no different to securing finance for a business purchase though as banks normally ask ….“Sure you can have the 750K for your new business venture…. and which property do we use as collateral?”
You also have costs in breaking it up if you ever want to refinance one out and even pay it off… as the lender can say … hang one you owe us for the other property too… so we need payment for both to release the clean title…. and also any other debts you have with that bank… credit cards … personal loans etc…..
As long as you get it termed clearly that the security is only for the property specifically. – Sam applies when you are going garentor … get it in writing that is is specific for that loan only and shall not apply to any other agreement/contract.In saying that all you need to do is ask yourself whether the risk is worth the return? It is still a good way to move forward if the return is there….
Also ask the what ifs to see if you can handle the financial pressure if requred to do so ….
Challenge | Resolution |
– Vacancy | Get landlord insurance + Good Property Manager
– Damage | Insurance
– Interest Rate | FIXED INTEREST
Increase |
– Repair | Due Diligence pre purchase
Blowout | Ongoing maintenance/ repair reinvestment program
Loss of Job | Positive cashflow property or cash reserves
Cheers
Kiwi
[baaa]It is not ideal, butpossible to use the existing security as additional security for hte new property.
Just go to your exisitng lender and tell them you want to borrow to buy a new property. They will ask how much deposit you have, you tell them you have equity and will be using this property as well as the new purchase for security.
They then do a valution on both. If you have enough equity, and everything stacks up, then fine.
If not, you may have to go to a new lender, and take the existing loan over to them too.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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
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