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can someone explain to me an interest only loan

Discussion in 'Property Finance' started by Darlinghurst Boy, 29th Jan, 2016.

  1. Darlinghurst Boy

    Darlinghurst Boy Well-Known Member

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    ok.. this is my scenario ....house ... Country NSW- Moree
    Price --150k
    Deposit @ 20 % 30k
    Rental income $200 weekly

    Borrow 120k interest only and pay stamp duty and legal costs myself.

    Rates -$1800 a year ( country area / moree )

    So i will be paying back 120k on interest only or should i borrow for the stamp duty too?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    why not borrow 150k plus the stamp duty?
     
  3. MRO

    MRO Well-Known Member

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    Depends on personal circumstances but generally borrow as much as you can and include these expense in the total loan.
     
  4. jaybean

    jaybean Well-Known Member

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    I don't think you can stack on stamp duty, unless you paid for that out of a LOC from a separate property.
     
    Last edited: 29th Jan, 2016
  5. Darlinghurst Boy

    Darlinghurst Boy Well-Known Member

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    I doubt if a bank would lend me that... That would be 100% of the loan??

    Can any mortgage brkers confirm they would lend 100% ?
    Would you take my other fully paid off IP as security ?

    What criteria would i have to meet ?
    My wage is only about 55k a year .

    I just want interest only loan on a Country NSW property... Would that be negative if its in the country area?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I am a mortgage broker and can confirm you could borrow 105% or more - but you could only borrow 80-90% against one property and the rest secured on a separate property and/or related parties.
     
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  7. jaybean

    jaybean Well-Known Member

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    Isn't that x-coll? Wouldn't it be better to get a LOC against his other property and draw the stamp money from that?
     
  8. Darlinghurst Boy

    Darlinghurst Boy Well-Known Member

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    I see ... Probaly would be easier then just putting down 10% or so rather than putting my other IP or my home up as security.

    I might ring around mortgage brokers to see if they will take 10% deposit and give me a interest free loan... Interest might be higher on 10% though.. I will see.
     
  9. Darlinghurst Boy

    Darlinghurst Boy Well-Known Member

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    I just rang a mortgage broker here in Darlinghurst... Her advice is .. If you put 10% down only your going to pay 2% mortgage insurance.

    So you'd be better off putting down that money as deposit on top of your 10% deposit and making it 20 percent .. Which i guess makes sense ... Unless im negative gearing.
     
  10. tobe

    tobe Well-Known Member

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    Let us know when you find an interest free loan, Id like one of those myself.
     
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  11. kierank

    kierank Well-Known Member

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    When you find out, PM me their details!!!! :) :)
     
  12. Darlinghurst Boy

    Darlinghurst Boy Well-Known Member

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    Well now i've gone off the 10 per cent deposit idea..

    Its no use paying 2% mortgage insurance... But then again 2 per cent of 150 k would be only 3k i suppose ?
     
  13. tobe

    tobe Well-Known Member

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    Borrow 20% plus stamp duty from your unencumbered property, and then 80% on the new property.
     
  14. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Using a LOC is exactly what Terry is trying to describe. Avoiding x-coll is simply a matter of appropriate structuring. This topic gets discussed at least 3-4 times a week on this forum and it's standard procedure for every broker here that reguarly contributes.

    Can be worthwhile if you wish to preserve your funds for a future purchase. It basically stretches your funds further. You could 2 properties at 80%, or 3 properties at 90% using the same amount of cash.

    You wouldn't pay LMI if you had unlimited funds for deposits, but if the funds are finite, paying LMI can get you further.
     
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  15. jaybean

    jaybean Well-Known Member

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    Yes but it was the way he wrote it that made me take pause. Could have been interpreted in both ways yeah.
     
  16. Bayview

    Bayview Well-Known Member

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    Not necessarily;

    If the purchase costs and stamp duty are borrowed from an LOC secured by another property, and the remainder of the funds needed to buy are borrowed from an entirely different Bank, and secured by the new property then it is not cross-coll.

    Of course; you need to have access to enough funds in the existing LOC to cover the remainder of the purchase plus the purchase costs ans stamp duty.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  18. jaybean

    jaybean Well-Known Member

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  19. Coota9

    Coota9 Well-Known Member Premium Member

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    Borrowing Scenario Example.

    PPOR Value 800K
    Loan amount 500K
    Current LVR 62%

    Take out a Separate loan (LOC)140K against PPOR so that loans look like below

    PPOR Value 800K
    PPOR Loan 500K
    LOC Loan 140K
    Total Loans 640K
    Current LVR 80%

    So this 140K can now be used for deposit & costs on an investment property as per below

    IP
    Value 450K
    Deposit 12% + Costs $76,500 taken from LOC

    New loan with bank X taken out for remainder of $396,000 to settle property.

    LOC & new loan are both tax deductable and investment property loans are stand alone and not crossed

    New Total Borrowings Below

    PPOR Value 800K
    PPOR Loan 500K
    LOC Loan 140K($63,500 still remaining post IP1 purchase costs)

    IP1
    Value 450K
    Loan 396K
    LVR 88%
     
  20. Perthguy

    Perthguy Well-Known Member

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    I have. My last purchase was a 105% lend. So I borrowed the 100% of the purchase cost + funds to cover stamp duty and other purchase costs.
     
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