Borrowing for wedding / new kitchen

[DeanW]

Hi all,

I own a single property in Frankston with around $223,000 owing (it's a 3 br unit good condition, good location and I believe valued at around $270,000+). I am 2 years into a 5 year fixed rate period with RAMS (I know, I’ve learnt a lot in the last year or two).

I am getting married this year and would also like to renovate the kitchen. I'm looking at borrowing around $15,000 to help cover the costs. The property I’m in will become an investment property around midyear when my fiancée and I move a little closer to the city (we will rent).

In terms of personal loans CUA had the best deal that I could find which was for three years at a rate of 11.2% (variable), $120 establishment but no early / extra repayment fees.

It would not be sensible for me to break from my RAMS loan at the moment as the fixed rate break costs would be huge. I have spoken to RAMS and they have advised me to complete a loan variation application form requesting the extra money that I require. I'm a complete novice with this stuff and I am after some opinions on whether this is the best way to proceed? I was told that there would be a $220 valuation fee plus mortgage insurance costs but for the month of January the normal $295 application fee has been waived.

How exactly does the above situation work? RAMS would add the extra $15000 to my loan but how would I then access it? As I said I have no idea with this stuff....

Any help would be greatly appreciated.

Regards,
Dean.

 

[Kristine..]

Hi Dean

Congratulations on your forthcoming marriage!

MSA, the Solicitors which attend to settlement for RAMS, will simply contact you when the file reaches settlement and ask for your instructions for disbursement of funds.

You can also access the funds through your usual RAMS internet banking facility.

If you are arranging a separate loan this will have a separate account, if you are increasing the existing loan then there will be no change to account details except that the loan facility will increase and you will have redraw available

If you can set up a separate account then the new Deferred Establishment Fee period will be for the new account, as the existing loan account is already part way into the DEF period relating to the establishment of that loan.

If you simply increase the existing loan, then the DEF period resets and applies to the full loan amount.

Contact your previous loan writer / franchise office and they will be able to assist you

Cheers
Kristine

Hope this helps

 

[Perp]

I have spoken to RAMS and they have advised me to complete a loan variation application form requesting the extra money that I require. I'm a complete novice with this stuff and I am after some opinions on whether this is the best way to proceed? I was told that there would be a $220 valuation fee plus mortgage insurance costs but for the month of January the normal $295 application fee has been waived.

How exactly does the above situation work? RAMS would add the extra $15000 to my loan but how would I then access it? As I said I have no idea with this stuff....

I imagine they revalue your property, and if it comes up at $270, you can borrow 80% of that (with no LMI), which would be a little less that what you already owe - $216K. I assume they're willing to let you go higher, and if you go to, say, 90%, you'd be able to have total borrowings of 0.9 x $270 = $243K, which would give you $243K-$227K = $16K (which they'd give you in cash), less any applicable LMI payable for going above 80%.

You'd have to weigh up the cost of LMI (about $3K) and any other fees (eg loan documentation, valuation) against the potential interest savings from the differential between the personal loan interest rate and the mortgage interest rate. Unless you're going to take a very long time to pay off the $15K, you'd be better off with a personal loan, IMHO, but be aware that a personal loan will more dramatically impact future serviceability than increasing your mortgage.

 

[DeanW]

Thanks for the responses. I have decided to move forward with the personal loan as it seems to be best option for me. I did the sums and by the time LMI is added plus the costs for valuation etc for the RAMS loan variation compared to the interest on the personal loan, the personal loan seemed the better option. I beleive that i will be able to payback the personal loan quite quickly.

Once again thanks for your responses and as always this forum has been a great resource.

Regards,
Dean.