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Getting Finance for first IP - Help needed

Discussion in 'Property Finance' started by mikey7, 3rd May, 2016.

  1. mikey7

    mikey7 Well-Known Member

    Joined:
    30th Mar, 2016
    Posts:
    198
    Location:
    Sydney
    Hi All,

    I have been reading up a hell of a lot, especially @Terry_w 's stuff, and I thought I had enough knowledge to then approach a mortgage broker.

    I had a chat with her just then, and she's going to send through information about it all this afternoon.. but I wanted to see what everyone else thinks, as some of it appears to be completely against what Terry_w has said (especially in terms of cross collateralization).

    My current situation:
    - PPOR has been valued by bank at $1.1m ($1.375m by REA).
    - PPOR has $700k mortgage with $45k in 100% offset (655k owed).
    - PPOR is currently with Mortgage Ezy, variable rate at 3.94% (refinanced to them 6 weeks ago).

    - There is an opportunity for me to sell PPOR for substantially more in 12-18months.

    What I'm looking at:
    - Investment in Kallangur QLD for <$340,000 (I've found what I want and want to make an offer).
    - Rent appraisal is $320-340/wk.

    What the mortgage broker has found to 'suit' what I need:
    - Refinance PPOR with Newcastle CU fixed @ 3.99% fixed for 2 years(Loan 1) *No offset, being fixed*
    - Get a 105% loan with NCU fixed @ 3.99% for 2 years (Loan 2) *No offset*
    - Loans will be cross collateralized

    - She suggested that I up my PPOR mortgage by $21k, so that I can use that $21k + $45k in offset to have a 20% deposit for the IP, thus no collateralization. (This defeats Terry_W's suggestion of NEVER USING CASH).

    - Fee's im looking at will be $795 to exit Mortgage Ezy, and $850 to join NCU ($1645 total).

    What I believe I need (explained to broker):
    - PPOR mortgage (PI) with 100% offset
    - Split IP mortgage (IO)
    > 80% secured by IP
    > 25% secured by PPOR

    - All rent from IP goes into PPOR offset
    - All spending for IP comes out of PPOR offset (or linked credit card)


    Can someone please confirm that I am on the right track, and whether what the broker is offering is good enough?
    If my math skill serves me correctly, I'll be far better off having an account with an offset (at a higher rate of around 0.19%), than having no offset over the next 2 years.
    Hopefully this all makes sense. I need to get it sorted so I can make an offer.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    Hi Mikey,

    Not all brokers a good brokers, or investment minded brokers. It sounds like you've chosen one who isn't really across what's best for investors.

    If you need to explain to her what you need, and she doesn't click straight on it's probably not a good fit.

    You'd be best looking at using the equity in your PPOR for the full deposit and costs, and leaving your funds in the offset. Or if servicing is an issue, look at the possibility of paying hte offset funds into the loan, and splitting it off and redrawing to use a deposit. That way the full amount is deductible as per Terry's tips.
     
    Last edited: 3rd May, 2016
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Location:
    Sydney
    Sounds like you are on the right track and using that broker could cost you dearly, not only in paying more tax but crossing and fixing when you might sell.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,161
    Location:
    Canberra and Sydney
    Sounds like terrible advice @mikey7

    You need to simply:

    1. Set up a second loan split against your PPOR to fund the 20% deposit/costs on your next IP
    2. Set up a third loan (80% loan) secured only by your IP

    All up - you'll have three loans.

    Loan 1: Current PPOR loan
    Loan 2: Equity release for IP deposit/costs
    Loan 3: IP loan

    Easy peasy.

    Fixing can be risky for investors - looks like your current broker isn't leaving you with much flexibility for the future.

    Cheers

    Jamie
     
  5. mikey7

    mikey7 Well-Known Member

    Joined:
    30th Mar, 2016
    Posts:
    198
    Location:
    Sydney
    Yeh, I'm really not getting a good vibe that she quite understands it from an investors side.
    I almost feel as though I know more than her, which is unnerving, as I know very little, and have approached her for this reason.

    You wouldn't happen to know a good broker (Or, ideally, are you able to assist? Not sure how it works with you being in Perth?).

    Yeh.. You're articles are bloody invaluable - in all honesty, I would have believed everything this broker was telling me had I not come across this forum.

    Thank you. Glad I know I am on the right track.
     
  6. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    18th Jun, 2015
    Posts:
    2,458
    Location:
    Sydney & Gold Coast
    @mikey7, drop Jess a line. She's awesome.
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    14th Jun, 2015
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    1,173
    Location:
    Gold Coast
    Cross Collateral isnt to your benefit

    To cross or not - Somersoft Property Investment Forums

    and you can add a few more potential downsides.

    please ask your broker to explain how this works for you ?

    And while we are at it ........... if you are looking to sell in 12 to 18mths, whats with the fixed rate I wonder ?

    ta
    rolf

    ta

    rolf
     
  8. York

    York Finance Broker Business Member

    Joined:
    24th Jun, 2015
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    1,623
    Location:
    Sydney
    @mikey7 all the brokers who have replied above are investment focused brokers. As you can see, there is a consensus that the advice you have been given by your broker is poor and does not seem to suit what you actually need or want as an investor. Several things stand out. One is the cross collaterisation which others have pointed out. The other is the refinance which was only done 6 weeks ago. At a considerable cost it seems. If you plan on growing a portfolio which it looks like you are, why not get in touch with one of the brokers above? I am confident they could sort this out and explain to you what needs to be done and WHY it's best to do it that way.
     
  9. dabbler

    dabbler Well-Known Member

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    Get used to it, there are plenty of people in business, even professionals, who are not that clued up.