Join Australia's most dynamic and respected property investment community

Refinancing and Equity Release on PPOR

Discussion in 'Property Finance' started by swibble, 28th Sep, 2015.

  1. swibble

    swibble New Member

    Joined:
    28th Sep, 2015
    Posts:
    2
    Location:
    Brisbane
    Hi guys,

    Just chasing some general advice on how I should be structuring my property loan. Situation is I recently purchased my first property, which is my PPOR for 500k, and placed a 160k deposit down and have an additional 80k sitting in offset, at the time I chose the numbers somewhat arbitrarily, and not necessarily intelligently.

    Scroll to the future (4 months later), and with the low interest rates around, and incentives from banks, I'm looking to refinance (NAB's 250,000 velocity points bonus is in my sights), and at the same time release some equity just in case. I don't have firm plans for the money, though it seems with the current market turmoil opportunities may present themselves for someone with spare cash lying around.

    I am concerned about mixing/contaminating my loan, as I can see that sometime in the future, probably 4-5 years away, when finances dictate, I may look to upgrade my PPOR (move closer to the city), and turn my PPOR into an IP. Do I need to be concerned that doing an equity release now may affect potential deductions in future?

    I should probably change my loan to IO, however are there strategies available to possibly restructure my loan prior to turning it into an IP in future? Looking at this as it seems like I'll get a more favourable rate with a P+I loan.

    I'm thinking I really need to look at getting a planner/broker!
     
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    641
    Location:
    Sydney
    NAB has just updated their equity release policy and its not great (not to say other lenders are not going to follow up suit). More specifically you need to show proof of funds if the equity release portion is over $100k even @ 80% LVR.

    This maybe irrelevant in your case but I would go further in saying don't refinance your loan purely for special offers. Determine whether moving your loan to NAB doesn't impact what you plan to do in the future.

    Currently NAB has one of the more generous servicing calculators (and it has for a long time) so you generally want to leave them for when you need them. They also only do 5 years interest only whereas other lenders allow for an increased IO term.

    Having said all this NAB may still be the best option - just plan ahead.

    Ps. interest only is a powerful strategy if used correctly. It increases your servicing with some lenders and it allows you to save up more disposable cash.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    You should structure any refinance so that the original loan amount is not changed. e.g. if you borrowed $340k then keep this as one split. Also avoid paying PI if you can - but will generally mean a higher interest rate.
     
  4. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    864
    Location:
    Sydney (West) and Canberra
    Note that I/O with NAB typically involves an interest rate premium. It makes them rather uncompetitive in the PPOR/IO space, despite the attractive points offer.

    With some of their competitors, the pricing difference between P/I and I/O is relatively marginal in comparison.

    Which bank are you with? This will dictate the ability the ease of which you can release equity.

    By the sounds of the numbers, NABs new equity release policy shouldn't do too much damage to you as the release will likely be under 100k. The points offer alone probably shouldn't send you there, you may as well go to other pricing offers if its just rate your after (e.g. ING at 3.99, loans.com.au at 3.98).

    In terms of structure for your future plans, set yourself up with I/O repayments. This 'preserves' the original debt limit which may turn deductible once it turns into an IP. Divert extra funds into your offset to reduce interest.

    Cheers,
    Redom
     
  5. swibble

    swibble New Member

    Joined:
    28th Sep, 2015
    Posts:
    2
    Location:
    Brisbane
    Thanks for the advice, seems like I've slightly disadvantaged myself by not maximising my LVR when I initially mortgaged the property. Lesson learnt.

    As for the refinance, NAB still looks to suit my purpose the best, however I really need to investigate IO options before proceeding to see if the advantages of going IO outweigh the higher interest rate in my situation.

    ING and loans.com.au, whilst they have slightly lower rates, the annual fee for ING and the difference in the rates would only put me ahead <$200/year, so really the sweetener from NAB is the only reason why I'd look to refinance for now...
     
    Last edited: 28th Sep, 2015
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    yes you have, but this is very common with most not realising their mistake. You will have learned from the experience and will be better prepared next time.
     
  7. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,162
    Location:
    Canberra and Sydney
    Yep you will - all the promo rates are generally geared towards P&I owner occ loans.

    If you're chasing rate - check out INGs 3.99. They should release equity when LVR is sub 80% but if the purpose is investment the carded rate will be high for that portion.

    Cheers

    Jamie