Converting Ppor to Investment

Discussion in 'Loans & Mortgage Brokers' started by Tony Clark, 8th Aug, 2018.

Join Australia's most dynamic and respected property investment community
Tags:
  1. Tony Clark

    Tony Clark Well-Known Member

    Joined:
    3rd Sep, 2017
    Posts:
    57
    Location:
    Gold Coast
    Hi all,

    Quick question. After the mandatory 1 year living in a Ppor before being able to make it an investment, what consequences are there as far as the loan side of things? Does the interest rate change? I’m assuming it does if I change it to interest only. Are there any other things to consider?

    Thanks!
     
    Tony Clark, 8th Aug, 2018
    #1
  2. Phantom

    Phantom Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    2,054
    Location:
    Sydney
    In theory...…... you would inform the lender that it is no longer an owner occupied residence and instead is now an investment. They would then switch you over to investment rates. Nothing to do with P&I or IO per se. Unless you are also switching your repayment type at the same time. Which might be a different story especially if switching from P&I to IO.

    In practice...………..
     
    Phantom, 8th Aug, 2018
    #2
    Tony Clark likes this.
  3. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,001
    Location:
    Australia wide
    What's this mandatory 1 year thing you speak of?
     
    Terry_w, 8th Aug, 2018
    #3
    Tony Clark likes this.
  4. Tony Clark

    Tony Clark Well-Known Member

    Joined:
    3rd Sep, 2017
    Posts:
    57
    Location:
    Gold Coast
    We claimed the first home concession, so had stamp duty waived.
     
    Tony Clark, 8th Aug, 2018
    #4
    Terry_w likes this.
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    IP rate with most lenders these days is a little higher than owner occ - coz they can :)

    ta

    rolf
     
    Rolf Latham, 8th Aug, 2018
    #5
  6. Username86

    Username86 Well-Known Member

    Joined:
    31st May, 2016
    Posts:
    139
    Location:
    Perth
    In my experience.. Nothing.

    I have told the tellers at the bank several times that it is an IP.
     
    Username86, 8th Aug, 2018
    #6
  7. Dean Collins

    Dean Collins Well-Known Member

    Joined:
    21st Feb, 2016
    Posts:
    982
    Location:
    New York
    Lol.....I hope you got it in writing that they know this.

    Somehow I think "telling the tellers at the bank" isn't sufficient notice.
     
    Dean Collins, 9th Aug, 2018
    #7
  8. Dean Collins

    Dean Collins Well-Known Member

    Joined:
    21st Feb, 2016
    Posts:
    982
    Location:
    New York
    Its not just "because they can" investor mortgages have a higher rating so APRA should be enforcing banks track this.....but until they do spot checks and start fining banks (home owners) for lying/being lax....the point is moot.
     
    Dean Collins, 9th Aug, 2018
    #8
  9. JohnPropChat

    JohnPropChat Well-Known Member

    Joined:
    10th Sep, 2015
    Posts:
    2,293
    Location:
    Middle Earth
    Lock in a good fixed rate for a 2 to 3 year term before you move out. Whether you tell the Bank or not, they tend to find out and send you notice for switching to IP rates. With a fixed loan, they are less likely to break it.
     
    JohnPropChat, 9th Aug, 2018
    #9
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    Disagree here

    That would require APRA meddling, not prescriptive advice as they have done to date

    A lender can price stuff how they want I would have thought in a free market economy.

    If the IP loans are higher risk ( and there is good data to say its so) then from 2002 to 2015 Home owners were subsidising investors..........

    there may be a case for maybe the ACCC, around non competitive conduct etc, but dont believe its an APRA piece per se

    ta
    rolf
     
    Rolf Latham, 9th Aug, 2018
    #10
  11. Codie

    Codie Well-Known Member

    Joined:
    6th Mar, 2018
    Posts:
    1,623
    Location:
    Brisbane
    They cant be that onto it. I've got 2x PPOR loans with the same lender.. told them I was moving out into the next one as a PPOR. Loan remained unchanged.
     
    Codie, 9th Aug, 2018
    #11
  12. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,001
    Location:
    Australia wide
    Lol!

    Good work. Just be careful communicating with them because some staff member checking your address will soon cotton on.
     
    Terry_w, 9th Aug, 2018
    #12
    Dean Collins likes this.
  13. Dean Collins

    Dean Collins Well-Known Member

    Joined:
    21st Feb, 2016
    Posts:
    982
    Location:
    New York
    Its not the banks determining the higher rating but APRA.

    For the same reason that portfolio loans are now rated with higher cost base.....and they are going away as well (or will be once we've gone variable on our last fixed loan).
     
    Dean Collins, 9th Aug, 2018
    #13
  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    Default and subsequent recovery rates on IP loans are typically higher on LMI risk assessment, hence the weighting Im guessing is based on reality, not some APRA direction of the wind.

    last I looked APRA APG 223 had no prescription that one type of loan should be priced higher than another, but again thats not my area of expertise so probably wrong.

    whats a portfolio loan ?


    ta
    rolf
     
    Rolf Latham, 10th Aug, 2018
    #14
  15. Dean Collins

    Dean Collins Well-Known Member

    Joined:
    21st Feb, 2016
    Posts:
    982
    Location:
    New York

    St George has a loan type called "portfolio loan" that allowed us to borrow for additional properties each year as the value of the properties went up (70%max valuation).

    At one stage we had 4 IP's bundled into this package BUT St George have increased the variable and fixed rates on this loan type so these are now no longer cost effective (again due to APRA weightings) so as our properties are coming out of their fixed terms we are moving them out of this package into regular P+I or moving them to other banks (eg moved one to Westpac last year as they had a better 5 year fixed). The last one is coming off in 2020.
     
    Dean Collins, 11th Aug, 2018
    #15
  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,653
    Location:
    Gold Coast (Australia Wide)
    Ok......... Branded name for ST George LOC.

    excellent active debt recycle product, but Im not a big fan of hard debt on LOCs period - that "repayable on demand clause" scares me.

    LOC have always had a higher 10 to 40 pts.

    APRA has not applied these weightings, this is the lenders approach to even out their > 30 % IO position.

    If this were truly an APRA only pressure, then I would expect that gap to be relatively consistent between IP and PPOR loans.

    The spread has been shrinking, especially on fixed rates.......

    again not my area of expertise, but I recall there are peops here that work for or have worked for APRA.

    Just looking at the figures on the ground/.


    ta
    rolf
     
    Rolf Latham, 11th Aug, 2018
    #16
  17. Dean Collins

    Dean Collins Well-Known Member

    Joined:
    21st Feb, 2016
    Posts:
    982
    Location:
    New York
    Nope were the same rates when we signed on.

    The advantage was like I said easy equity redraw though yes....can be repayable on demand.
     
    Dean Collins, 12th Aug, 2018
    #17