Hi,
After doing much reading on this site (& many others) I have a few questions I would appreciate some opinions on.
Some quick background-
We have one IP in Adelaide (solely under DHs name as I’m not working much at the moment due to kids): current value approx $320,000 – loan balance $220,000 (loan is currently I &P) . It is currently rented for $260pw.We are currently living in the SA country but will be returning to Adelaide later this year & will be moving into the IP.
We currently also have a car loan with $24,000 remaining.
Total family income is approx $78,000 (gross) + $20,000 (non taxable).
Our goal is to buy a larger (long term) PPOR while keeping the IP with the aim of using it to help our children get started when they move out of home.
I’m after a bit of advice about how to best go about investing in our next PPOR. We have minimal savings (just a small emergency fund) with all extra cash going into the car loan with the goal of paying it off by November this year. Once this is paid out, we should have approx $30,000pa free to save/pay towards a new loan (hopefully more as DH should get a significant pay raise later this year).
We were intending on saving this money until we have a deposit for our PPOR. Are we better off using the equity as deposit on a new PPOR (buying earlier) & then paying the ‘intended savings’ off on the new loan?
Also, would it be advantageous for us to switch the loan to Interest only to free up more cash for our new PPOR fund? Even though we are intending on keeping the IP long term? I always thought IO only delayed the costs, hence no long term benefit?Our intention is that while we are living in the IP we will be doing a few minor renos & redecorating (new carpet/paint etc, new shed, roller shutters, air con, replace a wall & remove another) approx cost $10,000. This should increase the value of our house to approx $340-350,000 & hopefully get us min$300pw rent. We are intending to use a line-of-credit to pay for these improvements to preserve the integrity of our loan for future tax deduction purposes. Am I right in thinking a LOC is the best way to do this?
Also, we are wanting to refinance our loan as we aren’t happy with our current lender (poor customer service & two miscalculations on their part which resulted in defaults) and believe we can get a better deal elsewhere.
We want to keep the loan in DHs name only (using my income to guarantor, if needed). How will the banks include dependants (we have 3 children) if the loan is only in DHs name? Will they affect the loan in the same way they would in a joint loan?Sorry for the long post, I hope it is clear as there are a lot of thoughts going around in my head at the moment…I’m looking for any advice/suggestions so please let me know if there are any clarifications I can make.
Thanks
KrissiDear Krissi,
You have a lot on your plate being a wife and mum. The intended move later in the year will cause some teething issues such as adjustments, and kids’ schooling (if they are of school age). So remember to take deep breaths.
Firstly, you are right to pay off the car first. Getting that out of the way means that you will have no bad debt going into the new property.
Secondly, you are also right to keep some cash for emergency. It is never a good idea to live off your credit card, although i know from experience that sometimes this can’t be helped.
Thirdly, I strongly believe that you are also right to move in to your existing IP later in the year while you renovate it I am all for creating value.
Now, your question is this: Are we better off using the equity as deposit on a new PPOR (buying earlier) & then paying the ‘intended savings’ off on the new loan?
Your current IP is $320,000 – current loan is $220,000. This is 69% gearing. To maximum amount you can top up this loan to, without paying lender’s mortgage insurance is $36,000. You said you want a bigger house than your IP, so I’m assuming that you’d need a budget of around $400K.
Your $36,000 is just enough as a 5% deposit for a $400K house. Deposit $20,000; stamp duty: ???. LMI ??? Other costs ???
I will throw the ball back in your court. If you buy your PPoR using your equity, would you be able to sustain repayments on a $220,000 IP loan; $36,000 new loan for deposit: and, $380,000 home loan on $300 per week rental income and $78,000 (salary) and $20K (your non-taxable income).
You did say that husband is due a raise soon. That’s fantastic.
In the end, Krissi, you alone know the answer. I often say to young people, let the math do the talking. Be honest with the budget. When I was a lender, you will not believe the number of people who say they only spend $200 a month on entertainment but when they tracked their expenses, it was closer to $400.
Don’t do what I call mathematical calisthenics. Keep it simple: All in-coming less all out-goings. If the numbers stack up, go to the next step.
Will property prices remain flat? If yes, save some more, there is no hurry. Will prices sky-rocket? If yes, buy now, don’t wait. Is the property market sliding down? Keep saving, and wait.
Again, only you can answer that because you are on the ground, hopefully, using your time wisely by tracking the market.
I hope this has given you some clarity.
Take Care
Angel
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