5% Deposit for First Home Buyer Scheme vs Interest Only Offset

Discussion in 'Loans & Mortgage Brokers' started by Curious Johnny, 8th Feb, 2020.

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  1. Curious Johnny

    Curious Johnny Member

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    Good morning.

    My question was centred around the governments 5% deposit home loans for first home buyers. I am looking to take make my first purchase for a PPOR and my plan is to invest in real estate inside the next 3 years after making the initial purchase, and then beyond that.

    My question is, would the benefits of an Interest Only Loan with an Offset account, with roughly a 15% deposit, having to pay LMI, outweigh the short term benefit of paying no LMI and having a P&I loan under this scheme ?

    Any points would be appreciated.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Generally IO not available for main residence loans
     
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  3. Morgs

    Morgs Well-Known Member Business Member

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    Especially if >80% LVR - the few lenders that have IO OO appetite won't like that.

    Are you planning on turning the purchase into an investment in future?

    What will be the limiting factor in 3 years in buying the next investment property? Deposit (which is preserved buying the first property with 5%) or borrowing capacity?
     
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  4. Archaon

    Archaon Well-Known Member

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    Have an offset account on the PPOR, put the 15% in there and save the interest.
    Pay down your principal and split the equity off into a new split to use as a deposit for a new property?
    @Terry_w has anyone seen these FHLDS loans, if you have a 95% loan, can you pay down 15% and redraw it, or is redraw locked until after 80% LVR?
     
  5. Richard Taylor

    Richard Taylor Well-Known Member

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    Yes had a dozen or so approved and working thru the contracts prior to completion.

    As long as your chosen lender offers a redraw facility on the product there is no issue in paying down the loan and redrawing it.

    Cheers


    Richard
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    the rate spread on IO to PI at that LVR is a bit big with the few lenders that offer IO on PPOR lends, though there are one or 2 exceptions as always

    2 Core qs to the outcome of your goals may result in a different strategy

    1. Are you looking at an active debt recycling strategy ?
    2. What is the fate of the property you will buy, Long term B&H OO, flick to upgrade, or hold as IP while upgrading ?

    ta
    rolf
     
  7. Peter Pakarinen

    Peter Pakarinen Member

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    Are you wanting to invest or owner occupied?
    Best to sit down with a broker and go through all the servicing and purchasing scenarios.
    If you are a first home owner then going Owner Occupied and also getting stamp duty relief goes a long way. So short answer getting first property as OO is generally the best initial starting point.
     
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  8. Curoch

    Curoch Active Member

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    Can you explain why getting your first property as OO is the best initial starting point? Is it just because it leaves you with a lot more room to move for your next property purchase?
     
  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    It might or might not be the best starting point. There's plenty of reasons why you'd invest and continue to rent yourself. There's also plenty of assistance for first home buyers that is worth taking advantage of. It really depends on your circumstances are with consideration to your larger goals.

    One really good reason why buying your OO home is a good starting point is because it locks in your non-deductible debt at an amount today. From there you can work towards paying it off. If you delay buying your own home and prices continue to rise, then at some future point, your non-deductible debt is likely to be higher than if it was established today.
     
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  10. craigc

    craigc Well-Known Member

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    In addition to Peter’s points about incentives and o/o debt, if selected wisely, your main residence (generally) and it grows in value, it is one of the few tax free investments in Australia.

    There is of course always the trade off between best investment choice for o/o and best lifestyle
    choice for personal circumstances.