My first Investment loan.

Guys,

I'm looking for advice on my first investment loan.

Recently, I put an offer $405 000 for a property in Harrisdale,WA subject to finance approval.

My offer has been accepted. I have till 30/4/2018 to sort out my loan. At the background, I have been working with my bank (ANZ) for investment loan pre-approval.

My current status on PPOR loan:

Home loan balance : $ 282 000

Offset balance : $ 278 000

As you can see I only have the balance around $ 4000 to pay off my PPOR loan.

My PPOR worth around $580 000 in the current market.

When I approached my bank and asked what is best the interest they can offer for interest only , investment loan .

The below was the response from the bank :

I have received the approval for the following rates for your loans:

Existing Residential: 3.85 % from 4.0 %
New Investment: 4.45 %

Funding purchase price + stamp duty would not be a problem. And you would not need to pay any LMI.

I suppose my question would be is the rate offered any good? I noticed ubank offers 4.29 %, should I ask my bank to match that or ask for better rate,if so what is reasonable interest I should ask? 4.10% ?

Adding the stamp duty and other fees I'm looking to borrow $420 000.

I'm planning to rent out the place.

If you are in my situation which way you would go ?

 

Sounds like a cross collateral ?

 

sorry for my ignorance, can you please elaborate what you mean by that ?

 

I’d go to a broker. Your current lender will give you a poor structure that will bite you later, where they use both properties as security for your new loan. It can cause all sorts of problems.

Your rate is okay - not the cheapest, but ANZ are not an online lender so you shouldn’t compare them to u-bank.

 

Thanks for your reply Jess. Can you please explain further ? How it will bite me later if go with ANZ?

 

If the money in your offset was earned/saved and loaned by the bank as an equity release on your PPOR, you are throwing a lot of money down the drain.
Explained in post 8 in this thread by @Terry_w

 

Have a read of this link - Cross collateralisation - 10 reasons to avoid

 

Nope, I'm not taking any money from my PPOR offset account for the investment loan.

I have requested the full loan amount for my investment property . Do I still need to pay 20 % deposit, given I have good savings and equity in my property ?

 

That is definitely cross secured.

 

You need to ask your broker (or bank but careful with advice from a bank because they are there to help them, not you), but basically you want to borrow the whole 105% (100% plus 5% for stamp duty) when purchasing an investment property. This is often made up of something like 25% equity released from the existing property and an 80% loan on the new property itself but could be higher than 80% if you qualify.

Whether you have enough equity is another thing. If not, then terry also has some tips on some ways you might be able to borrow the rest (eg parents going guarantor and similar).

But yes basically you want to borrow all of it when the new property will be an investment, and keep your cash to pay off your deductible PPOR debt.

 

@Anthony Brew They’ve said their PPOR is fully offset, so borrowing the whole lot will be possible one way or another.

 

And you might be able to get the owner occupied rate on a portion of your investment loan as well.

 

Hi @Terry_w , if I want to get the OO rate on the portion, I will need to tell the bank the portion is for personal stuff/PPOR improvement not investment. But firstly, it is harder now to get IO OO loan even just a loan split. Secondly, if I use a loan split with OO rate to fund an IP purchase, does it mean I have committed a mortgage fraud since the original purpose I declared for the split is not investment?

 

If depends on the circumstances.

 

Why do you want IO? In the past it was recommended so as to preserve negative hearing while paying down your OO loan. Your loans already paid down, or could be with the offset balance, so why IO?

There are lenders who can do OO rates based on the properties use, rather than the purpose of the funds, which is opposite to how the ATO determine it.
Speak to a broker and get some better ideas.

 

Thanks for your reply guys. So, what should I ask my bank? how to setup my investment loan ?

 

Your bank has already shown you how they do it - if you try and explain you want it done differently it’s the blind leading the blind so to speak.

If you want it done properly go see a broker who knows what they are doing and can set it up properly.

You’ve got loads of time.

 

Since you are broker, can you please advice me how you will you set up a loan in my circumstances?