PPOR - 20% Deposit or 10% + shares

My partner received a 170k(NZ) inheritance earlier in the year, this money is in New Zealand where we are from (have lived in Melbourne for 5 years), we put this money in a term deposit for 6 months with ANZ(nz) whilst we decided on the best investment strategy.

Whilst we are still learning about this, we have decided we would like to use some of the money for a deposit on a PPOR, so we can stop paying rent and I believe we can avoid stamp duty being first home buyers.

The exchange rate is not great at the moment but if we were to transfer the money over to Aus now, we would have roughly 150k (Aus)


Some info on our financials:

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- We have a joint income of roughly 125k

- No credit card debt or hire purchases (we both have access to a 1k credit card each though)

- I personally have a 8k student loan in nz and a 8k family loan, these are both scheduled to be paid off in 2 years at $640 a month

- We are currently paying 2k in rent a month

- Our bills each month (Power, gas, water, internet, phone, contents insurance, food, public transport) are $1300

- Our joint entertainment budget is $600 a month


No car, chosen not to have children and no other dependents (well, two cats), both in our jobs for 3+ years.

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Our main question at this point is around how much to put down as a deposit.

We are looking at properties up to 500k, primarily apartments in inner urban Melbourne (Footscray, Prahran, St Kilda, Preston etc)

Our gut reaction is to put a 10% deposit down which will still leave us with 100k for other investments (looking at diversifying across managed funds and shares.. but a lot more learning to do before we commit), we believe we can swallow the likely LMI in return for having more money left over to invest with..


Opinions?

 

Rather than 10%, put down 12%. This makes the LMI not quite as outrageous as a 90% lend, but still allows you to put some money into shares if you wish.

 

If you borrow to buy income producing shares the interest should be deductible as would a portion of the LMI.

Get some tax advice on borrowing 80% initially and then going for a 10% increase. Then get some credit advice as this is more difficult to do than going 90% upfront,

 

From a credit perspective, you're better off getting the LMI upfront, splitting the loan and debt recycling for the shares.

 

That is possibly the way to go, but there is an argument that where the loan is increased just to buy shares then all the LMI could be claimed - but I don't think this is the case.

Cash out restrictions will make any increase hard though.

 

In reality, this would be difficult as the LMI is usually apportioned to each loan split rather than whacking it all on the new split.

 

Thank you for the replies!

I've been using this link for calculating LMI - Do You Qualify For A Mortgage Insurance Discount?

Seems if we put down 10% the LMI will be $7920 and at 12% only $5421, plus our repayments will be lower. Does the LMI usually get rolled into the loan amount? Or are we really going to be putting up 60k for deposit plus another $5k for LMI, plus legal fees etc, or can this all be rolled into the loan and we just put down the 12% for the whole lot?

I guess the next step is finding a good broker, I find this step (and the upcoming steps of finding a solicitor, accountant, building inspector) a bit daunting as we don't have family here to give recommendations and so are relying on google, It's a bit hard to know where to start! Any tips on this?

Also, in regards to genuine savings - The money isn't from savings but inheritance BUT, it's been sitting in nz for 6 months in a term deposit, would this qualify? I've read that some lenders consider term deposits as genuine savings... what about term deposits in another country?

 

Don't use google to find a broker - there's heaps of excellent ones on this forum, and they don't need to be local.

 

Would you have any suggestions for someone local though, I think we would like to sit down with someone the first time around.

We'd ideally like to be finding a broker, solicitor and accountant who can give us a bit of hand holding since we are new to buying property and haven't grown up in Aus but who could also assist us as we start moving more into investments further down the line.

 

@Peter_Tersteeg , @Simon Moore and @Mitesh Dedhia are all Melbourne based.

 

Thank you Jess, really appreciate your responses