Hey guys,
I am new to both this forum and purchasing property but hopefully that is all about to change. Property values are pretty high at the moment. It's proving to be hard to find a 4×2 home in WA for anything under 300,000 so I have come up with an idea for finance to ease the burden for me and my partner, just wanted to put it forward to see what issues/suggestions people might have on the idea (hopefully I can put whats in my head into words clearly):
We are currently looking at a budget of around $320,000 shared between myself and my partner. This will secure us a reasonable home in what I think is an area with alot of potential. For this ammount loan the repayments would be around $630 per week. With a joint weekly income of $1300, we can fit this ammount into our budget but do not have much breathing space for future rate rises etc
My parents (we are only 21) currently have $50,000 left to pay on their mortgage on a house that is now worth $450,000. They currently pay $500 per week in attempt to pay the loan off asap.
I have been thinking that if I use the equity of my parents house, or use my parents as a security guarentee, we would be able to take out a loan of $390,000 (the cost of the house + ammount left on parents loan). This has been confirmed with the bank and would make repayments roughly $700 per week. I would use the extra $50,000 to pay off my parents mortage. That way instead of my parents paying $500 to the bank, they would pay the $500 towards me/my loan until they have payed off the money they owe + interest. Leaving only $200 for me to put toward the loan per week.
This would go on for 2 years or so until they have payed off what they originally owed. At the end of the 2 years we could refinance if need be to reduce weekly repayements and (assuming all works out) we would be in a better financial position with payrises etc. And hopefully the property value would have increased. I have discussed this with my parents and they would be happy to go along with this assuming it was all written up in a way that would cover any exceptional circumstances (most likely using a solicitor
)It is seems hard to put down on to paper. But going with what I have written above (sorry for the essay like length), can anyone offer any ideas/suggestions/put downs with this plan? Id be glad for any input.
Thanks for reading!
Do you intend living in the house or is it an investment? Are you going to be claiming the FHOB grant? Do your parents have the benefit of a fixed interest/lower interest rate loan?
In addition do your parents understand that they will be unable to sell (With restrictions) or utilise the equity in their property for any use down the track.
In the event that the value does not increase at the level you anticipate you would be unable to refinance and release your parents security.
Richard Taylor | Australia's leading private lender
We intend to live in the house until we are in a position to purchase another property for investment, so most likely for a number of years. We will be getting finance with my parents as a garentee only (not an applicant) which still qualifies us for the FHOB grant, so yes we will be claiming that. My parents are currently on a variable interest home loan so they are paying the current interest rate the commenwealth bank offers (9.47% ?).
Speaking with the parents last night we did come to the conclusion that they would be unable to sell for possibly a number of years. This would obviously be something we would need to really look into should we choose to go ahead. But they are thinking that they will not be selling the house. Once it is paid off, they plan to downgrade to a small unit and use the current home as a rental.
So the ability to refinance after the first 2 years depends mainly on the increase in value of the property? That's an interesting issue, i was under the impression that we would be able to refinance after my parents have paid off their portion of the loan assuming both mine and my partners income has increased somewhat substantially…
If your parents are looking to move out into a unit in a few years, it may not be the most pertinent thing to pay off the loan quickly but rather put the additional money into an offset account (to be able to take the money as a deposit on the unit as well as to be able to claim the cost of interest on the rental property) – speak to your fin planner/accountant about the strategies that you may employ.
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