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

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

Join Australia's most dynamic and respected property investment community
Tags:
  1. Curious Johnny

    Curious Johnny Member

    Joined:
    19th Sep, 2019
    Posts:
    10
    Location:
    New South Wales
    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.
     
    Curious Johnny, 8th Feb, 2020
    #1
  2. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,005
    Location:
    Australia wide
    Generally IO not available for main residence loans
     
    Terry_w, 8th Feb, 2020
    #2
    Curoch likes this.
  3. Morgs

    Morgs Well-Known Member Business Member

    Joined:
    7th Dec, 2017
    Posts:
    1,815
    Location:
    Sydney NSW
    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?
     
    Morgs, 8th Feb, 2020
    #3
    Terry_w likes this.
  4. Archaon

    Archaon Well-Known Member

    Joined:
    20th Mar, 2017
    Posts:
    1,896
    Location:
    Newcastle
    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?
     
    Archaon, 8th Feb, 2020
    #4
  5. Richard Taylor

    Richard Taylor Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    434
    Location:
    Brisbane
    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
     
    Richard Taylor, 8th Feb, 2020
    #5
    BunnyXiao, Curoch and Archaon like this.
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,654
    Location:
    Gold Coast (Australia Wide)
    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
     
    Rolf Latham, 8th Feb, 2020
    #6
  7. Peter Pakarinen

    Peter Pakarinen Member

    Joined:
    4th Mar, 2020
    Posts:
    23
    Location:
    Kogarah NSW
    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.
     
    Peter Pakarinen, 4th Mar, 2020
    #7
    Curoch likes this.
  8. Curoch

    Curoch Active Member

    Joined:
    21st Aug, 2019
    Posts:
    35
    Location:
    Canberra
    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?
     
    Curoch, 5th Sep, 2020
    #8
  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,171
    Location:
    03 9877 3000
    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.
     
    Peter_Tersteeg, 5th Sep, 2020
    #9
    craigc and Curoch like this.
  10. craigc

    craigc Well-Known Member

    Joined:
    25th Jun, 2016
    Posts:
    1,601
    Location:
    Melbourne
    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.
     
    craigc, 6th Sep, 2020
    #10