Im currently investigating the purchase of my first investment property.
Yesterday I went along to see a mortgage broker and looking at my details he found a lender that could lend me up to $600K for a property in Melbourne.
My current financial position is:
Current PPOR Value: $350,000
Loan remaning on PPOR: $183,000
My current Salary: $80,000 per year
I have no other debts (credit cards, personal loans, etc)The broker suggested I used a 20% deposit for my first investment, which would be taken out as a Line of Credit on the PPOR. My current loan on the PPOR is with One Direct, and the broker suggested I open the Line of credit with One Direct too. Is this correct or should I go with another lender to avoid cross securitisation? He then suggested a loan for the other 80% of the investment property with another lender eg: ANZ, NAB, etc, etc
I have a another question regarding gearing. If I wanted to accumilate investment properties more aggressively, should I used 5% deposits (using my line of credit) so in theory I could buy 4 investment properties, instead of buying 1 investment property using a 20% deposit?
Thanks everyone!
i'm fairly new in investing but to answer your first question let my tell you that the reason why your broker is sugestingthis is to maybe avoid morgate insurance and some other cost and also would avoid having your house(ppor) cross secure with your investement as the new lender(80% loan) would see it like you saved the 20%.
as for your other question the deposit amount doesn't have anything to do with how many houses you can buy is all about the debt that your income + rent can serve. In other words you can divide 20% into 4 deposits but if each property is worth 250,000 your total debt would be 1 million dollars compare to using a 20% deposit on a 450,000 dollars.i hope this help and didnot made it worst to understand.
Hi Pg
Firstly welcome to the forum and I hope you enjoy your time with us.
OK agree with your MB that you should look to secure a LOC or interest only loan to cover the 20% deposit plus acqusition costs against your PPOR however you have a problem with One Direct. They were the online lender of Anz and are no longer taking new business.
You would be better off to look to refinance the existing loan and then take the LOC upto 80%.
Yes i agree whilst you are building up your equity have a look at a higher than 80% lvr.
Unfortunately max loan with Anz is 90% less LMI so no luck there.
Richard Taylor | Australia's leading private lender
This is indeed a good technique if you plan to avoid the morgate insurance. I advice that you go along with it. On your second question, yes, using 5% deposits will turn out good, provided value of the property raises in future.
Miami web designThanks everyone for your replies, much appreciated.
Yes Richard I received a letter from one direct suggesting they are no longer taking on any new business. My loan (3yrs fixed) on my PPOR is currently fixed at 7.49% but that ends in Sept 2010. So I either have to wait until then, or talk to ANZ now and see what deal they can do for me to refinance without any penalties.
Elisa yes the broker was trying to avoid LMI, but doing some quick numbers, I figured even if I paid LMI buying multiple properties (lets say I buy 2 properties using my equity at 90% and pay LMI) , the capital gain alone (using a conservative 5% growth per year) will outstrip the cost of LMI in its first year. I'm looking at buying next to booming areas of Melbourne (Coburg and Reservoir in Melbournes north) so capital appreciation isnt an issue now or in the long term.
Thanks
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