Hello all,
I am new to the investment game but learning lots from this site thanks!
Anyway I have had a proposal put to me regarding refinancing my PPOR and using the equity plus savings to purchase an IP. The PPOR is only 4 months old value 400k has about 17% equity.
The idea is to refinance with a line of credit to 90% on my PPOR use the 25k from this along with my 35k savings to purchase a new IP off the plan. The IP would be 90% mortgage again using a line of credit. Both would be interest only and offset accounts (I think so may stand corrected on this) so I have 10 to 15k as a buffer if needed.
My question is does this sound a good idea? I know I have LMI to consider plus the cost of closing the mortgage early but the broker seems to know what they are talking about. Put it like this would any of you do this to get started?
Your thoughts would be greatly appreciated
Nick
Hi Nick,
It probably would be feasible however as a risk V reward I wouldn't buy off the plan with your equity levels. If the market has even a small downturn between when you exchange and when you need to settle you may be left with an LVR that is unacceptable ie over 90%.True there are some lenders who will go to over 90% (up to 95% max) for investment but only a few…so what happens if that changes and or you don't qualify with those lenders at the time you need the loan.
You also have the valuation risk that the valuer thinks you paid too much or that they think the whole complex is over valued as compared to others in the area. Again LVR issue comes into play.
I think that you need to have at least 20%- 25% equity before buying off plan…but just my opinion.
If it wasnt off plan then I would say go for it as you can control the financing risk.
Cheers
Marty McDonald | Mortgage Experts
http://mortgageexpertsonline.com.au/
Phone MeHi Nick,
I agree with Marty but the risk your willing to take is up to you. If you are never going to use your current PPOR as an ip, it may be worth paying the 35k in savings you have off your PPOR and then increasing the LOC for your IP purchase. You may then be able to claim the interest on the complete amount?
Glen
Bloody hell! what sort of advice is that???
Firstly you will be up for LMI again. It may be aroound 3% of the loan amount. Then you have loan exit fees and govt charges.
Secondly why use cash to purchase an investment property when you have personal debt. You are just throwing money away if you do so.
And why would you want to use a LOC as the main loan for the new IP?
I would suggest you stay with the existing bank, pay your cash off you home loan and then set up a new split and use that to invest. This would be more tax effective and save you costs.
Your broker doesnt know what he is talking about and is probably aiming to boost his commission. He is not invovled in the sale too is he?
I would ditch the broker asap.
But I also think you are too highly geared.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 for the replies guys.
In short I have not felt entirely comfortable with the risk and yes Terry the broker was recommended to me buy the seller! Admitted I asked for some recommendations.
Not sure about using my current PPOR as a rental but I am having the house assessed for rental and valued independently so will look at what they say. I am also going to see another broker and maybe a financial consultant who can advise on the best way to build my portfolio.
Marty – I went for new because of the tax savings, lack of maintenance and stamp duty but I think I understand you mean buying older is a quicker completion and the loan is already set as opposed to wait for the final build?
I am in a good growth area so my property should gain next year. I have wondered if paying my cash off the mortgage is more beneficial to start with so will look at this as well.
Anyway back to the drawing will keep you posted on the next lot of advice and once again thanks for your advice.
NickTerryw wrote:Bloody hell! what sort of advice is that???Firstly you will be up for LMI again. It may be aroound 3% of the loan amount. Then you have loan exit fees and govt charges.
Took the words out of my mouth.
Terryw wrote:Secondly why use cash to purchase an investment property when you have personal debt. You are just throwing money away if you do so.Was thinking the same – unless the equity isn't enough to cover the deposit and completion costs.
Terryw wrote:And why would you want to use a LOC as the main loan for the new IP?That's baffled me also – you'll generally pay a premium for a LOC in terms of a higher interest rate. An IO loan will do the same trick…but will be cheaper
Terryw wrote:Your broker doesnt know what he is talking about and is probably aiming to boost his commission. He is not invovled in the sale too is he?Sounds like it.[/quote]
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Terryw, congrat for posting >10,000 posts
I won't jump in with 90% LVR… very high risk at the moment
Agree with LOC's comment… cost extra 0.1-0.2%
god_of_money wrote:Terryw, congrat for posting >10,000 posts
Wow, that is quite a lot! Always valuable too. Cheers Terry, here's to another 10,000!
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Congrats Terry on 10,000 posts (must admit the 'Bloody hell' bit made me laugh thanks)
I am off to see another broker (wed) after what has been said on this post thanks.
Terry you mentioned paying of my personal debt with my 30k would there be a problem, with this if I intend to rent out my ppor in a couple of years?
Nick
specialone wrote:Congrats Terry on 10,000 posts (must admit the 'Bloody hell' bit made me laugh thanks)
I am off to see another broker (wed) after what has been said on this post thanks.
Terry you mentioned paying of my personal debt with my 30k would there be a problem, with this if I intend to rent out my ppor in a couple of years?
Nick
Thanks Nick
I don't think I mentioned that paying $30k off personal debt would be a problem. If I did I might have to disagree with myself.
Ideally you should pay down personal debt before investment – to save you tax. But if you were intending to rent the property out later then it may be best to hold onto your cash in an offset account instead. But this will depend on the situation as you may be able to pay down the personal debt now and reborrow more money to be used for an another investment.
When you have low equity it may not be possible to do things ideally.
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
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