All Topics / Finance / Which Option is better?

Viewing 9 posts - 1 through 9 (of 9 total)
  • Profile photo of coolboycoolboy
    Participant
    @coolboy
    Join Date: 2009
    Post Count: 6
    March 12, 2011 - 2:54 am

    We plan to invest in a property and our broker has come up with 2 options and asked us which one we would like to go with?

    <<
    1. Refinance asking for a pre approval of $450,000 and we will have to pay approx $31,500 upfront for the property we are investing.

    2. We stay with same bank where we have our existing loan and request a pre approval for $450,000 and add on approx $12,000 in lenders mortgage insurance. This way, we will not have to pay any money from our own savings.
    >>

    I am on 40% Tax bracket and I've $31,500 in my savings under offset account of my existing home loan. Which of the above option is better to go with? if I opt to go with LMI, then some of 12K can we recovered from my tax and keeping the 31k in home loan would save some interest on my own property home loan. Is there any spreadsheet already available to do this analysis?

    FYI, I am paying around 6.3% interest on my existing home loan (i.e where the 31k is in offset)

    Regards
    Coolboy

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    March 12, 2011 - 3:03 am

    Hi Coolboy

    It’s hard to comment based on the info you’ve provided.

    I take it you’ve got a PPOR and you’re looking to purchase in IP. Is that correct?

    If so, how much is your current PPOR worth, what is the loan amount and how much are you looking to spend on the IP?

    Also, which bank are you currently with?

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of coolboycoolboy
    Participant
    @coolboy
    Join Date: 2009
    Post Count: 6
    March 12, 2011 - 1:46 pm

    Its worth 560K (loan for 440k) and currently with Bank west.

    I have around 30k in hand but want to know whether i can put this in PPOR and go for LMI around 12k for IP.

    Profile photo of HomeLoanExpertsHomeLoanExperts
    Participant
    @homeloanexperts
    Join Date: 2007
    Post Count: 43
    March 14, 2011 - 12:41 am

    It is likely that increasing your existing loan (likely as a separate loan account) is the best option. BankWest has relatively competitive LMI premiums.

    Do not cross securitise the properties! This will make the LMI quite expensive, as the individual loan size will be >$500k for both loans and so both will be charged a higher premium rate. We have an LMI calculator on our website you can use to work out the cost of LMI for each loan. BankWest's premiums are relatively similar to lender # 5 in our calculator.

    Note that if you paid LMI on your current loan when you took it out then you will only pay an LMI premium on the increased amount if you increase your loan with BankWest. The calculation of this is more complicated and our calc isn't designed to handle this type of query. However it will be cheaper than our calculator quotes. As a general rule with BankWest the premium you originally paid will be deducted off the new premium. This is because they use QBE as an insurer and that is their policy.

    Keep in mind for tax deducting the interest it doesn't matter what the loan is secured on. It only matters what the loan is used for. So if you borrow on your home to buy an investment property then the portion of the debt on your home that was used for investment purposes should be tax deductible. As always, talk to your accountant.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    March 14, 2011 - 5:08 am

    Hate to say i disagree.

    I would pay down $31.5K off the home loan balance on the basis you can take out a new sub loan for $31.5K.

    Then i would use the $31.5K sub loan as deposit and sufficient to cover costs and go to a new lender for the balance.

    This way the interest on the $31.5K becomes deductible and you dont incur the LMI premium on both loans.

    Of course it maybe a viable option to increase the loan and cop some LMI but without doing the figures it is difficult to comment.

    i am sure you Broker has discussed this option with you as well.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of igreenigreen
    Participant
    @igreen
    Join Date: 2011
    Post Count: 14
    March 14, 2011 - 10:38 am

    Otto D
    ” So if you borrow on your home to buy an investment property then the portion of the debt on your home that was used for investment purposes should be tax deductible.”

    Is this true?

    Regards
    Stephen

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    March 14, 2011 - 12:12 pm

    Hi Stephen

    If the purpose of the loan is for investment irrespective of the security the interest is deductible.

    If the Bank would lend you the entire loan using the security of a pogo stick and the funds where to buy an IP then the interest could be claimed as a deduction.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of coolboycoolboy
    Participant
    @coolboy
    Join Date: 2009
    Post Count: 6
    March 15, 2011 - 12:33 am

    Thanks for all your comments and its really very helpful…

    Coolboy

    Profile photo of ksherwellksherwell
    Member
    @ksherwell
    Join Date: 2007
    Post Count: 125
    March 16, 2011 - 10:37 pm

    I suggest option 2, as you dont have to go into your own savings

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