Hi everyone,
I’m looking for a little guidance on the structure for my first home loan. I’ve just turned 24 and I’m looking at buying a 2 bedroom unit in inner-city Perth. While living in this unit I intend on doing minor renovations and eventually moving out when I find the right girl, settle down etc. amongst all this I want to travel, the unit is transient in nature for me. I intend on using the unit I buy as my first investment property, the difference is I intend on living in it for a while
The loan will be ~$300kGiven the information above, what do you think is the best option of the ones given;
1 Buy the unit on an interest only loan, live in unit and pay interest only.
The idea behind this option is that the property will have capital gains and when I move into a new house, the property will be CF+ as the rent will be more than the payments by that time. A relatively cheap option and will allow me to travel but ultimately I would never own the unit.
2. Traditional P+I loan and then re-finance into interest only.
This will option means that the property should have greater positive cash flow when I move out, given that may be in a relatively short period of time (3-4yrs) I’m not sure how effective this would be as the principle would still be quite high. It would also limit my travel plans as it is quite a restrictive option if I need quick access to cash.
3. Line of credit loan with redraw facility then re-finance into interest only
This is my preferred option as it means I can pour my pay-check straight into the mortgage, reduce interest payments and still actually live. Principle will be reduced the most here and free up the equity in the unit.
4. Other ideas??
Something I missed?
So what are your thoughts on how to progress? In any case, I will be required to move in as I intend on qualifying for the first home owners grant. I guess the ultimate goal is having a little equity in the unit to help finance my “real home” later on. My salary is such that any of these options are viable and I am able to budget quite effectively.
My parents are very insistent that I just have a P&I loan and pay it off and sell the unit when I move, there has to be a better way!
Thanks for any thoughts you have
Alex
Hi Alex
Welcome aboard.
Set up the loan as IO with an offset. When it's time to move onto your next PPOR, take the cash out of the offset and either use it towards your next PPOR or place it an offset that's attached to your new PPOR.
When it comes time to purchase the next property – you may be able to use equity in your first property. This will all come down to the loan amount relative to the value of the property at the time and your banks policy on equity releases.
If you're a terrible saver and will simply make the minimum interest repaymetns each month, then opt for P&I because you'll be forced to pay off something.
Some folk will always insist that P&I is a must – it's about changing your mindset.
Most important above all is to travel. IPs and wealth are great – but traveling while you're young beats everything!
Cheers
Jamie
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]
Hi Jamie,
Thanks for your reply.
Just a quick question with your plan though; When I move to my next residence would I then be able to claim the interest as a tax deduction or would I have to re-finance the loan? As I understand the deduction is based on the purpose of the loan, not the security so if the original purpose is a "place of residence" and the purpose changes to an IP later can the interest purpose change mid-loan as well?
If I cant, would I then be better off with a credit line, withdrawing a portion as a deposit and re-financing for a smaller amount (and interest) with the (now) IP unit?
Cheers
Alex
Hi Alex
As Jamie said welcome to the forum and congrats on taking the plunge into your first property.
Look hate to say buying your first property and getting the structure wrong from day 1 could be an expensive mistake you just don't want to make.
What not save yourself the hassle and time and drop Jamie a line and get him to sort the loan out for you.
That way you get free Professional advice (Jamie like most of us doesn't charge anything) and have someone else do all the worrying and negotiating of playing in a snakes pit with lenders all telling you how good they are and what the can do you for.
Course what they mean to say is that they only act in their interest and really couldn't care less about you.
Jamie is a top bloke and an expert in loan structuring.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
The loan will be ~$300k
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