You have some misconceptions which may stop you from doing what you want to do so best to have a decent conversation with your banker or broker.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
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Thanks Benny,
Yes growing my RE portfolio is my main goal and dream. I didn't actually know the banks would lend you that much, i have always been under the impression that you would need at least a 10% deposit as a minimum. Will all major banks lend up to 100% of the property? and is there a certain criteria that needs to be met in order to lend up to and over 100% or the total value of the property?
I have a feeling the next property will be my PPOR for the next few years at least being we have our first baby on the way, property #3 onwards will more than likely be IP's
Hi John,
A broker would be better placed to advise you of the current scenario with different banks. Certainly though, there are many benefits of being able to borrow over 100%. And there are ways to do that too, depending on each investor's situation.
You seem to have "what it takes" in my eyes (based on your input), but others would be better placed to assist you in depth. Main thing is to sit down with someone knowledgeable and map out your likely path (set goals) so that you will be heading in the right direction from the outset.
Go for it,
Benny
2 ways of borrowing 105%.
One way is to access the 25% equity of your current property (assuming you have that equity) and 80% of the new purchase or say 10% equity against your current property and 95% against the new property. You just need to make sure the loans are seperate in this scenario.
Second way is to go with the Adelaide Bank product which comes with a $20,000 credit card that can be used to pay for the stamp duty. You need to have quite a decent income for this option.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
OR.. you can apply with Investec Bank product. 100% LVR on residential loan with NO LMI
Yes but thats a medi product so not applicable to us mere mortals.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Shahin & Richard,
Regarding IO repayments, doesn't a lender expect that the principal would be paid off within a certain term? We cannot pay IO for the duration of our lives, or can we?
What happens if after 10 years of paying IO that the property drops into negative equity and one runs out of time to pay off the loan? What happens then?
Also, what Scott No Mates said about offloading to Super. I've earned some extra income and don't want to give the ATO 37% of my earnings and would like to dump the maximum into mine & my partners Super.
My partner & I are about to venture into a similar situation to John in the middle of this year hopefully. One IP & one PPOR, so this thread is of interest to me.
Steve.
Loving the information guys, keep it coming.
Shahin you suggested earlier that I should sit down with someone to have a more in depth chat to about this, Is there anyone that you guys can suggest me to sit down and have a more in depth chat to that's based in Melbourne? Preferably for a cheap fee rather than too expensive?
Cubit, Yes you are right lenders will one day want to see the loan roll over to P & I but as long as the account has been maintained satisfactorily most lenders will allow the IO term to be rolled over.
Obviously if for some reason the lender revalued the property and found it was in a negative equity position then YES it is likely they would want the loan to be converted to P & I.
Yes salary sacrificing into Super will reduce your Taxable position but will mean you cannot access the funds until you reach retirement age.
If this suits then sure it is a good idea.
JWareham, most forum members loans we process are done via email / Skype / Telephone etc however i have a business partner based in Melbourne (Jacqui from the PI forum here) who looks after the property sourcing side of our business.
We don't charge fees for our time.
Cheers
Yours in Finance
Richard Taylor I Ph: 07 3720 1888 I [email protected]
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Depends on the age and servicing but more so the lender. Most lenders will look at your age and servicing and then determine that you need to start paying the principle down.
In another scenario – if the loan is an investment loan and its with Westpac then they have a no age policy so as long as you can service the loan you do not need to pay the principle down. Their thought process is that as this is not the applicant's PPOR and its an IP – they can sell the property anytime thus no need to go on P and I repayments.
If after 10 years time the property goes into negative equity (then you have bigger problems) but seriously the bank doesn't look at it that way. It comes down to age and servicing.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
jwareham1985 wrote:Loving the information guys, keep it coming.Shahin you suggested earlier that I should sit down with someone to have a more in depth chat to about this, Is there anyone that you guys can suggest me to sit down and have a more in depth chat to that's based in Melbourne? Preferably for a cheap fee rather than too expensive?
Most mortgage brokers don't charge – get someone independent and that doesn't have any hidden agendas (like any profession) and someone that thinks long term rather than transactional.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hi I know this is an old post but I enjoy reading it and wanted to ask if jwareham1985 converts his loan to interest only loan and rents it out as an IP how will he ever get to pay the loan off?
Hi Ronnie,
I enjoy reading it and wanted to ask if jwareham1985 converts his loan to interest only loan and rents it out as an IP how will he ever get to pay the loan off?
Well, that depends on many things. Your overall question seems to infer that JW should pay it off. And you might be right – but each investor’s situation is likely to be different, and what is right for one may not be optimum for another (even if still “right”).
Let’s question the pros and cons of “paying down a loan on an IP”…..
PRO’s of “paying down a loan” :-
Creates a lower LVR, thus creating a good Bank history (i.e. more loans?)
Security – or “sleep at night” factor enhanced
…CON’s of “paying down a loan” :-
If other debt exists (credit card, PPOR loan, car loan) these should be “paid down” first (the IP remains Tax deductible – the others aren’t mostly)
Reduces Tax refund as amount outstanding drops (less Interest being paid)
An Offset can have the effect of “paying down” a loan while retaining flexibility – pay extra into the Offset instead.
…That’s just a quick starter list. I’m sure there will be MANY more CON’s (and some more PRO’s too – though I can’t think of too many). Anyone else want to help Ronnie out by adding to the list?
As a final thought – there are myriad ways of making IP investing work. The difficiulty in creating the list above is that it can become too generic, and taken as gospel. There are many “Ah, but what if…” situations that can turn a right answer into one that may not work in every case. Let’s give it a go anyway – I’d be interested to see others’ thoughts on this one.
Good question Ronnie !!! *applause*
Benny
Hi Benny thanks for your reply, If the property purchased had a great capital growth over time and you are using interest only loan , I can understand in the future you can sell for a lump sum as the property has risen in value while claiming tax deductible on the loan, but what if you purchased a property that has a very low capital growth or even no growth? I’d be great to hear what others thoughts on this one as well. Thanks
The idea Ronnie is that the excess funds you are not paying into the loan are used elsewhere, either invested to grow the portfolio, or more pay down non deductible debt. It’s a zero sum game with that respect, however there is more practical tax benefits from paying IO on investment debt whilst there is non deductible personal debt in play.
If you have an established portfolio which you don’t want to grow and non non deductible debt it may be practical to switch to P&I for some/all of your investments.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Corey and Benny are correct, and I’ll add another benefit of leaving as IO. A common method is to buy a portfolio, have them all as IO. The portfolio as a whole should go up faster than CPI (this is what most people would want), when you start to look at retiring you can sell off property within the portfolio and pay down the loans, which will lower your repayments and start generating a higher income. At this stage you’ll probably be working less so the benefit of the tax deductions is reduced.
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