Hi all
thanks for any advice regarding the following (I am fairly new to Australia and also not very knowledgeable about finance);
I have a lump sum of A$1.5 million following the sale of a business and plan to buy a personal residence valued between $1.2-2million (I'm currently renting). My income is $300k pa.
If I buy a house < $1.5million then i will not need a mortgage. If I buy a house >$1.5 then i need a mortgage.
My thinking is that I should buy a house <$1.5mill in order to be mortgage free, but then many of the houses I prefer are in the upper part of my price range.
My questions are
1. How much additional money would it cost me to get a mortgage of between $100-500k? would it only be a few thousand dollars or would it be a very large sum?
2. I am based in Sydney (lower north shore) – can u recommend an excellent mortgage broker or am i better off arranging my own mortgage (any tips on how to go bout this?)
3. any other advise that might be relevant?
thanks in advance
Brian
Hi Brian
Firstly welcome to the forum and from what you also said welcome to Australia.
Not sure from where you originate but i am also a fairly new Australian moving from the UK 15 years ago.
Certainly with the information you have provided i think you will find most lenders will welcome you through the doors but you have to remember that you need a loan not only to suit your present circumstances but also to be flexible enough to grow with you in the future should you decide to purchase an investment property or indeed want to release equity for other investment asset classes.
As a rule of thumb in the current climate for every $10,000 you borrow it will cost you around $65 / month to pay back the principal and interest. So for $100,000 this will cost $650 / month.
In Australia you are unable to claim a tax deduction for the interest on your principal place of residence so you need to utilise as many strategies as possible to reduce the interest payable on your mortgage.
As for a decent mortgage broker unfortunately i dont now one lol.
Any other questions feel free to ask away.
Richard Taylor | Australia's leading private lender
thanks for the info
1. whats your opinion about the finanical pros/cons of whether to buy a cheaper house without mortgage or a more expensive one with mortgage?
my current thinking is that I would be fairly happy in a $1.5mill house without mortgage and no financial stress/risk
– but alternatively I could buy something closer to my dream house for $2mill with a mortgage, yet not have too much financial stress due to the significant equity I'll have in the house which I can draw down on if needed (also I have a secure job which is unlikely to be affected by current economic conditions). Also I think that buying a more expensive house in the relatively depressed property market of Sydneys lower north shore at the moment may lead to significantly greater gains when/if the market picks up again over the next 7 years.By buying the more expensive house, I get the enjoyment of the nicer house and potentially may increase my net worth by a greater proportion
is this a reasonable line of thinking?
2. if i buy a $2mill house with a $500k mortgage costing me approx $3500 repayments/month, I would have aprox $18k p.a after living expenses. If i need money to buy a car or investment property then I can release some equity from the house
would i be best off with an off-set mortgage account from the outset or would another type of mortgage be best?
Brian
Wont comment too much about point 1 as i think that is an individual decision.
I dont believe in ever taking on too much bad debt however if you have good employment and sound income then at the moment there are some real long term bargains to be had. Remember what is a depresed house price today will not be tomorrow and over the long term you are likely to see some excellent capital growth.
Yes an offset account (as long it is fully transactional and 100%) is a must in any climate.
Richard Taylor | Australia's leading private lender
i've always thought an offset account was good in principle, but the interest rate on these accounts is higher than that of standard mortgages.
How can you determine at which point the additional interest rate cost of the off-set account is compensated for by the benefits of the account?
Brian
I think you are shopping in the wrong place.
Most of our customers are paying 5.05% with 100% offset on loans more than $250K.
Richard Taylor | Australia's leading private lender
Hi Richard
"Most of our customers are paying 5.05% with 100% offset on loans more than $250K."
how much would the interest rate be for a similar loan amount with a standard mortgage that is not off-set? would the overall entry/exit fees be the same?
Yes exit and entry fees would not differ.
That rate would represent a professional package rate so normally an Annual Fee of say $350-$375 but would cover application, valuation (and at $1.5M + that could be a couple of thousand dollar savings on its own) bank legals, rate discount and fee free 100% offset.
Richard Taylor | Australia's leading private lender
but how much higher would the interest rate be (compared to a standard mortgage)?
Standard variable rate currently is around 5.75% + so is cheaper not more expensive.
Richard Taylor | Australia's leading private lender
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