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subdivision loans - does this make financial sense?

Discussion in 'Property Finance' started by proper_noobie, 19th Oct, 2015.

  1. proper_noobie

    proper_noobie Well-Known Member

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    From my understanding, lenders have a higher IR for construction, (4.82 is what my lender is offering at the moment).

    If one had sufficient funds in IP offset accounts to subdivide and construct a house, would it make sense to do so with those funds since I'm paying 4.42 on those loans? Once construction is complete, take out a loan against the new property?
     
  2. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Never ever use cash particularly when constructing - its best to use as much of the loan as possible and leave the cash in the kitty for any unexpected surprises with construction.

    The last thing you want to do is delay construction due to insufficient funds.

    Also most lenders do not charge a premium on construction loans although some of the second tier lenders do.
     
  3. proper_noobie

    proper_noobie Well-Known Member

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    I'm with cba for the 4.82% construction loan offer, the rest of my IPs are at 4.42. There's no risk of running out of funds to construct. Should I start talking to other lenders to get a better construction IR?
     
  4. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Is the construction loan investment or owner occupied as they don't price on investment loans so you get the carded rate.
     
  5. proper_noobie

    proper_noobie Well-Known Member

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    Subdividing an existing investment property in Melbourne that I bought a few years ago
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    CBA do price on investments so get your broker to do some negotiating for you. If your don't ask they will definitely just give you the carded rate.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Interest will only be deductible if you borrow to invest. If you invest and then borrow it won't be.