Hi Everyone, I am looking for my first IP and here is my situation: -One PPOR with 530 debt ( I have not done valuation recently but it worth between 700 to 750k) -I have a split loan for ppor 70k variable with offset and rest is fixed for 4 years(2 more years left). Both loans are P&I. (I know that I made a mistake by fixing the loan for 4 years and also by choosing P&I instead of interest only) -Combined income of 135k (one of us works 2days a week) My borrowing power is impacted by my current loan structure and because of that I could not go for properties that are higher than $400k. I have 120k deposit as well. What is your suggestion based on my situation? Should I pay the penalty and break the fixed term loan wich reduces my monthly repayments by $700 to $800? Thanks in advance,
Going to depend largely on the current market valuation and how co-operative your current lender is on an equity release. Get the property valued, look to set up a separate interest only equity loan to 80% of current market value less current loan balance (maybe use some of your cash funds to pay down the variable part of the PPOR and increase the equity loan by the same amount) and then use this as deposit and to cover acquisition costs on your new IP. New standalone interest only investment loan on the IP to 90% (Whilst you still can).
Unless you have to move banks due to policy/servicing calc then you shouldn't have to break the fixed loan. Get a val done and access the available equity asap before more changes are implemented and these changes will vary from bank to bank. Look at "debt recycling" the PPOR debt using the 120k cash deposit. This way you will reduce non deductible debt and convert it to deductible debt. Get help form an experienced investment savvy broker to set this up for you. Not sure how the current structure has effected your borrowing power? It will have more to do with the bank servicing calc and policy I reckon. Which bank are you currently with and are you dealing direct with bank or via a broker?
80% of $750k is $600k so that means a possible extra $70k loan without paying LMI. If you are buying a $400,000 property you would need about $100,000 cash to avoid LMI at get an 80% LVR. You have 2 choices - either pay LMI on the investment property, or Use the $120,000 - or maybe $30k of it to pay down the current PPOR loan, split it with a new $100,000 split and use that as deposit and for costs. I guess you have a 3rd choice of using the $120k cash but this would cost you in lost tax deductions. BTW if your variable loan is only $70k where are you storing this cash?
Thanks for the comment. Correct ,I am talking about the servicing calc. I am with ANZ and I directly contacted Bank.
Thanks for the comment. Everyhting is in offset account of variable loan so we have 50k more than what we need in there. Can you please clarify this? "Use the $120,000 - or maybe $30k of it to pay down the current PPOR loan, split it with a new $100,000 split and use that as deposit and for costs" Thank you
Thank you, so it seems that I need to revalue the ppor to release some equity but on the other hand, it increases my monthly repayments and that could cause issue with servicing the IP loan from the bank point of view. Please keep in mind that my knowledge about this topic is very limited. Thank you
If you use cash from the offset to invest the interest on your non-deductible loan will increase and this won't be deductible. If you pay the non-deductible loan down and reborrow to invest the interest would be deductible.
ANZ are one of the worst calcs for more than 1 property. You need to venture elswhere via an IP savvy broker. Heaps on here and distance isnt an issue with technology we have at hand. There are lenders that are far more generous than ANZ max borrowing capacity but changes are afoot so move quick.
