First of all i'd like to say these forums are great, have learnt a great deal over the last 12 months just reading information here and there.
I'm trying to see how I can proceed to investing with my current state:
I bought a house in Canberra (PPOR currently) in April 2007 for 335,000 (Loan Currently 322,000)
I've been told the house is now worth around the $365,000 mark, but haven't had an official evaulation done since.I aim to make this house an investment property in the next 3 or so years, so i'm trying to figure out if I should change my finance strategy.
Loan Payments are currently $1039.00 a fortnight, loan is for 325,000 over 30 years (Fixed till April 2010). I've been paying $1050 since i got the loan and a few pays at $1150. I attended an investors club meeting last night just to get some more information and was told I should minimise payments on this and/or possibly convert it to an IO loan as apposed to the P&I loan I hold now.
Given i don't hold that much equity currently, how am I best to proceed?
Should I maximise repayments for the 3 year period? or should I pay minimum and put all extra into a savings account for a deposit on another property?
When I bought the house I was on 57,000 a year so not much breathing room, however i'm about to take up a job paying 90,000 a year.
I'm 24 (soon to be 25) and want to make the right choices early on.
Thanks for any advice, glad to be a member of the site.
As a sidenote, are there any pros/cons for the Investors Club??
I would say since you are going to be moving out and renting it, you should make it IO immediately. Try to get a 100% offset account lined and put all spare cash in there – this will be the same as putting it in the loan in terms of interest savings.
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
Terryw wrote:I would say since you are going to be moving out and renting it, you should make it IO immediately. Try to get a 100% offset account lined and put all spare cash in there – this will be the same as putting it in the loan in terms of interest savings.Hi Terry, thanks for the prompt response.
Currently with ING, is it worth the break costs at this point? $1500?
So it seems i'm better off pooling money aside for a deposit in an 100% offset investment account?
Should I be looking at 106% loans to pick up some investments at this point, or save money religiously into the 100% offset?
Thanks for the advice, sorry for all the questions.
Hi there,
You are doing really great will all the stuff so far Congratulations…
Now it depends on your approach weather you want to be aggressive if yes then go for the 106% loan but i personally don't prefer it as they leave you more exposed. Better if you save some cash and then mean time keep looking for properties if you find see what can you do to get it and as Terry advised if you convert this into IO you ll certainly have more cash at your disposal to do something else. and putting it in offset account you are reducing your interest anyway. Hope it helps.
Cheers,
Good Morning guys, thanks for the info.
Do you think its worth 1500 at this point to refinance? (loan break fee)
In addition, how does the offset work with an IO Loan, i understant 100,000 loan, 5 grand if offset, pay interest on 95,000.
Does this pay off the principal if you are paying less interest? not sure
Thanks
Hi dead
On the basis that it is a IO loan you are being charged less interest with a 100% offset account.
Other consideration in refinancing is the cost of the LMI again. Unlikely you will get more than a 40% refund from ING
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Hi deadOn the basis that it is a IO loan you are being charged less interest with a 100% offset account.
Other consideration in refinancing is the cost of the LMI again. Unlikely you will get more than a 40% refund from ING
Well based on that, I may keep it as it is, pay minimum payment till the end of the loan, which puts the loan at $314,000 and go from there.
Would getting another valuation done on the house be beneficial?
Oh yeah!, can you get Fixed IO loans with offset?
You don't have much equity, so it is probably not worth moving banks as you will have exit fees and possibly LMI again. Maybe you can apply to vary your loan to IO.
You cannot generally have an offset account linked to fixed loans – but you could split a portion as variable and link an offset to that.
The reason IO is best for you is that you are paying down the loan with PI payments even though this will be an investment property. All of these extra payments are maybe able to be redrawn and used for your new home but the interest on this amount redrawn would not be deductible. If you were to use an offset account you won't be paying down the loan, so when the interest goes up when you take your money out of the offset, the extra interest will still be claimable.
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
deadlast wrote:As a sidenote, are there any pros/cons for the Investors Club??
Hi guys, totally forgot about this information, are there any success/failure stories concerning the Investors Club?
Also, how does the offset work on an IO loan? do you pay less per fortnight because of the offset?
Thanks again
DEAD
BANK says I can't change it to and IO Loan. So i'm locked for 2.5 years, given I don't want to fork out for LMI again.
So am I better off paying down the loan with the extra money I have (<10kr, 10k a year limit on additional repayments) or paying absolute minimum on the loan and saving the rest in an interest bearing account.
Thanks guys
Given you can't get out of the current mortgage, and you aren't planning on doing anything for 3 years anyway, I"d consider paying the maximum amount off your mortgage. Many mortgages now allow a small number of redraws per year of built up principal above and beyond the payment schedule, so you could always pull it back out if necessary (for instance, to use as a deposit)
Putting money into the mortgage will benefit you for two reasons :
1) the interest saved will be at a higher rate than the interest earned on a savings account (8% vs 5.5%) – if you reduce your debts it's the same effect as earning interest.
2) the interest earned on a savings account is taxed, whereas 'saved' interest is notAdditionally you're less likely to 'crack the piggy bank open' for silly spending when it is in the mortgage rather than a savings account.
When it comes to buying another place and turning it into an IP in a few years (assuming that's what you want to do) then you can refinance to a IO loan at the same time.
brc wrote:Given you can't get out of the current mortgage, and you aren't planning on doing anything for 3 years anyway, I"d consider paying the maximum amount off your mortgage. Many mortgages now allow a small number of redraws per year of built up principal above and beyond the payment schedule, so you could always pull it back out if necessary (for instance, to use as a deposit)Putting money into the mortgage will benefit you for two reasons :
1) the interest saved will be at a higher rate than the interest earned on a savings account (8% vs 5.5%) – if you reduce your debts it's the same effect as earning interest.
2) the interest earned on a savings account is taxed, whereas 'saved' interest is notAdditionally you're less likely to 'crack the piggy bank open' for silly spending when it is in the mortgage rather than a savings account.
When it comes to buying another place and turning it into an IP in a few years (assuming that's what you want to do) then you can refinance to a IO loan at the same time.
I'd like to buy an Investment Property as soon as I can, i'm just not sure what the actual input from me a fortnight would be worth. ie After taking out tax offsets and rent, etc. How much would I need to contribute.
However, if I redraw or use equity to purchase an investment property at the end of this loan, is it tax deductable? I think thats what I have to ensure from what i've been reading
deadlast
I have PM'd you re The Investors Club
Cheers,
EmmaHi guys, given i'm in an investors forum…. lol
I'm sure there is a wealth of experience with costs involved with Investment Properties.
for a 330,000 investment property, after taxes and rent (assume $350 a week/Canberra), how much out of my own pocket
a fortnight would I be paying on an IO loan for 330,000 over 30 years @ 8% fixed?The miss's seems to think it will cost way too much to fund an Investment Property, i'd like to change her mind
Thanks guys
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