Hi, this will be my first post……..
We are new to the property market so any help with these questions would be greatly apreciated!
My wife and I are currently overseas Australian citizens. In January we purchased a vacant block of land in country Vic, where we would like to build our dream home and live one day. The loan we got was a variable interest rate over 30 years for $81,000. We both have a decent income and would like to put a bit of a dent in it over the next 2 years.
Our dilema’s are that we will be home in a couple of years and would like to build straight away however realistically the building process may take up to 12 months from when we get home……so should we look at buying a small unit to live in when we get home, saving on rent and maybe consolidate our land loan with another loan for a unit??
Then the building process wouldn’t be as rushed for us. However are the banks going to lend us the money to build after a year or two in the unit? We would look at the unit as a long term investment then and rent it out.
Another question we have is over the next two years should we funnel as much cash as we can onto the land loan to get it down? Or try and save as well as paying the min? We have a redraw facilty on the loan so could we put a heap of money on it then when we need cash for a deposit use the redraw ooption? Or would the bank realise that we have been putting heaps of cash on the loan and reduced it, and be happy to consolidate to something a bit larger?
I am an electrician and my wife is a nurse so our incomes are generally pretty good. We have no dependants however will probably have one within 5 years. Do banks look at that negatively?
I hope what I have written isn’t too confusing, thanks to anyone who responds……..
[hmmm]Russell
Welcome to the forum Russell.
If you are able to service a loan on a unit and on the block of land when you return to Aus then this is probably the best long-term scenario as you then have 2 properties increasing in value, but you may find that owning a unit and a block of land might restrict your ability to borrow more for the building on the block.
Assuming you can do all three, after the house is built you can then move into it and rent out the unit. Bingo! your first I.P (Investment Property).
The problem is that the interest on the loan for the PPoR (Principle Place of Residence) is not tax deductible, while the interest on the loan for the I.P is.
So, It will be best if you can minimise your loan on the PPoR as much as possible. In this case, it may be best to come back to Aus, rent somewhere cheap for a year while the PPoR is being built and slam as much money as you can into the loan. After you move in, you can then access some of the equity to buy an I.P if you wish; the interest on the I.P will be tax deductible of course.
Banks by law aren’t allowed to discriminate against you in regards to whether or not you might have children, but they do have an impact on your borrowing capacity after you have them, so the banks will still lend you money – just not as much if you have kids. Your incomes, potential rent and LVR (Loan to Value Ratio) are what the banks look at first and foremost.
If you are looking to continue investing in Property in the future, it may be best to get your structure for borrowing set up correctly before you go much further. It sounds as though you may have the right loan by what you said about the re-draw and the offset, but a chat to one of our very knowledgeable M.B’s (Mortgage Broker) on this forum will set you in the right direction. No doubt they will post a response for you soon enough.
In actual fact, I am surprised I got in first – Terry usually beats everyone!!
One more thing – buy a unit with some land content – a villa unit or townhouse, and built after 1987 so you can claim depreciation on the building and maximise your tax returns when you use it as an I.P. Talk to a good property wise accountant about the depreciation stuff though.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Thanks for your reply Marc, you brought up some good points. Over the next two years do you think we should just pump all our money into this loan or try to save 10 or 20 thousand as well?
Russell
Originally posted by russell13:Thanks for your reply Marc, you brought up some good points. Over the next two years do you think we should just pump all our money into this loan or try to save 10 or 20 thousand as well?
Russell
I would be blasting away at that loan as hard as you can. The sooner you can pay it off, the more interest you will save, which effectively gives you more cash/equity for investing.
And, you will also have more equity to put into the house you build, thus cutting down the borrowings for that and saving on the interest which is not tax deductible.
Pay money weekly or fortnightly, and pay as much over the required repayment as you can afford. The interest is calculated daily (but charged monthly), so the more often you can pay money in, the less interest you will be charged.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I would be inclined to put extra money into a 100% offset account in case the future plans of your land changes. Buying a unit is probably not a good idea as it would be much cheaper to rent – my opinion only.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
