Hi All
I would really welcome input here as to a mortgage broker's advice to me on Friday.
I am looking to buy a property in Lane Cove, NSW, initially I thought about an investment property – but have since found out although I wouldn't lose my first home owners grant, I would lose the stamp duty exemption approx $15k .
I no what my lending capacity is but more importantly what I can afford and still enjoy life.
The best option he considers is:>
Only put in 20k (as a deposit) – – receive back $7k from home owners grant
Interest only loan with an offset account – Approx $340k
Pay Mortgage insurance (is this a big issue?)
The reasoning is the balance of my deposit – $40k could be put into the off-set account thereby reducing the interest payments I make – and continue to inject funds into the offset account on a monthly basis – which in the future could be used as a deposit for another property – and in the meantime I gather continues to reduce my monthly interest payments.
The calculations currently done show it would cost me approx $500 more a month to do this rather than paying the rental amount I currently pay – (not calculation in strata fees, insurance etc which I have available funds to pay after the interest payments
Would appreciate some input into this strategy and the pros and cons behind doing it this way .
Thanks everyone
Missmolly
Hi MM
Couple of points to bear in mind.
If you intend to buy it as an PPOR and then turn it into an IP down the track i personally would borrowing 95% LVR (even 100% maybe worth considering) and putting the extra funds into a 100% offset account.
Would look to take the loan as an interest only loan and accept the fact that you will incur LMI.
Remember mortgage insurance varies from lender to lender and insurer to insurer (some banks do not charge LMI but charge a risk fee or similar which can be cheaper). It is also a borrowing cost and can be tax deductible over the loan term or 5 years whichever is the shorter. It will proportionalised from the date you have the property for rent so is no big deal.
If you do decide to purchase a new PPOR down the track link the offset account to the new property.
Richard Taylor | Australia's leading private lender
I agree that a high LVR would be good with a 100% offset account with all of your spare cash in there. ANd remember if you were to move in initially you could move out and rent your home and still have it CGT exempt for up to 6 years and be able to negative gear it.
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
Thanks guys for responding.
Richard can you explain what you mean by: (a little further)
"If you intend to buy it as an PPOR and then turn it into an IP down the track i personally would borrowing 95% LVR (even 100% maybe worth considering) and putting the extra funds into a 100% offset account"
Also, I wont be paying LMI. My loan allows my to borrow up to 90% and avoid LMI.
Terry: How long would I have to stay in the property to avoid CGT for up to 6 years? I think its 2 months however not certain, can you please clarify.
Thanks for the responses so far guys!
Thank you Terry and Richard for your input, as this is the first purchase for me I still need to do a little more reading so I can get my head around what I am trying to achieve.
Am I correct in thinking if I move more funds into the offset account on a monthly basis that the interest payments would reduce for that month? –
MM
Yes, although you will still have to meet your monthly minimum repayments.
Scott No Mates – thanks you your input – i wouldn't have thought there would be a "set" monthly repayment given it was variable and not fixed interest only – am I thinking through this concept wrong.
I know if I did't have anything in the offset account then a figure based on the current interest rate would be payable, but if I continue to inject funds into the offset account, then the repayment figures would move depending on how much was in the offset account
MM
Kris
Which lender allows you to borrow at a standalone LVR of 90% and avoid LMI / risk fee ?
Richard Taylor | Australia's leading private lender
kris07 wrote:Terry: How long would I have to stay in the property to avoid CGT for up to 6 years? I think its 2 months however not certain, can you please clarify.
That is a question for your accountant. The legislation on this doesn't specify a minimum period that you need to stay in your property for it to be classed as your main residence. You just need to establish it as the main residence before renting it out. The minimum period may vary depending on your circumstances and the evidence you can furnish.
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 MM
Yes with the right lender your understanding is correct.
Richard Taylor | Australia's leading private lender
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