Buying first PPOR with 3 IPs underthe belt

[krh83]

Hi, just wondering if our dream is feasible! Could someone please help me figure this one out!!

We are currently renting and have bought 3 IPs over the past 6 years. We are slowly outgrowing our rental property and would like to buy something bigger, hopefully in a nearby suburb. Our plan would be to do this in the next 2-5 years so hopefully once the market cools off.

Our dream would be to buy a house in a suburb with the median house price in the current market of $850K. I am pretty sure that we won't have the borrowing power or the income to meet repayments but before i completely dismiss the idea, i want to check with you guys!

Here are the loan figures:
IP#1 current value $470,000 - loan amt $358,000 = equity $112,000
current repayments (LOC) $1375/mth
IP#2 current value $450,000 - loan amt $322,000 = equity$128,000
current repayments $1796/mth
IP#3 current value $490,000 - loan amt $433,000 = equity $57,000
current repayments $1363/mth

Income:
salary #1 $110K gross; salary #2 50K gross (combined personal income $160K)
Rental income
IP#1 $2100/annum
IP#2 $2000/annum
IP#3 $22500/annum

We really want to try to do this without selling any of the properties and would buy some where cheaper if that was the only option.
Any opinions welcome!!
Cheers!

 

[Rolf Latham]

Probably

But you'd need the lmi providers on your side, and the existing lending would best want to be with a lower serviceability lender.

Ta

Rolf

 

[D.T.]

how much deposit do you have? what lvr were you hoping to use?

 

[krh83]

We have about $60k saved so far, hoping to have at least $100k for deposit by the time we're ready to buy. Lvr around 85% I guess.

 

[Qlds007]

Yes believe it is possible and assume the rental figures are per month on IP's 1 & 2 ?

 

[krh83]

Whoops, no I missed a zero on both; ip#1. $21000/annum; ip#2 $20000/annum.
Thanks guys, sounds promising.
So will the equity on these properties reduce the loan amount of the ppor? Or will they just be security and we will still be up to payoff a loan 85% of the value of the ppor?

 

[Rolf Latham]

Whoops, no I missed a zero on both; ip#1. $21000/annum; ip#2 $20000/annum.
Thanks guys, sounds promising.
So will the equity on these properties reduce the loan amount of the ppor? Or will they just be security and we will still be up to payoff a loan 85% of the value of the ppor?

With standalone loan of 85 % lvr the other props dont need to be involved at all.


However, you may be ableto raise a little from the IPs with minimal LMI cost and get your new LVR down to80 % thus saving LMI.

On the surface, that may be attractive, but may not be the best solution depending on your long term goals.

ta

rolf

 

[krh83]

So I recently contacted mortgage choice and the broker came up with this:

Leave ips 2 and 3 as is.

Move loan for ip1 to new lender with the new ppor (purchase price $700k)
I think his scenario cross collateralises the properties with the total loan of
$1,055,758 (inc $22,824 of lmi calitalised)
Total security value $1,180,000
The ppor will be p&I and the ip part will be I&o
The repayments will be $5191 (ppor $3709 & ip $1482) @4.94 intro rate

Im not happy with this scenario because:
1. Crossing will make tax deductions difficult
2. The repayments are still more than what we can afford however this can be reduced by changing to an io loan for both props
3. Paying $22, 824 lmi is a lot!!!

I spoke to a RE agent yesterday and a unit in the same block sold for $510k in march this year. So its very tempting to just sell up now, take our $150k profit (minus cgt and selling costs) and $50k of savings and buying a property with io loan using minimal deposit and 100% offset (paying p&I into offset).

I never wanted to sell any of our ips but to make life easier and to afford to buy in our prefered suburb it might be the best option at this stage in our life (upcoming mat leave and change in careers)

Sorry for the long post! Can any mortgage brokers or finance experts out there see how we can keep the ips, buy a ppor for $700-800k and keep repayments for ppor below $3400/mth using a different set up?
Or is there a good mortgage broker in sydney's south that I should contact?
Cheers!

 

[Aaron_C]

Oh dear. There is no need to cross - and that is why the LMI is $22k. What are these people doing???

 

[Shahin_Afarin]

Firstly there is no need to cross securitise so throw that option out.

Did you pay LMI with the existing loans are the existing loans cross securitised or not?

You currently have a surplus equity of $15,000 - this is based on:

$470,000 x 0.80% (LVR) - $358,000 (existing loan amount) = $18,000
$450,000 x 0.80% (LVR) - $322,000 (existing loan amount) = $38,000
$490,000 x 0.80% (LVR) - $433,000 (existing loan amount) = -$41,000

How much more do you have in savings because I don't see an issue with your servicing as much as your deposit amount. If you are going to purchase a property for $850,000 - you will need a bare minimum of $95,000 deposit.

So this is part you really need to address. You can do an equity release of up to 90% on the existing loans (and this is why I asked if you have paid LMI as you would have lmi credit to access). Whatever you do don't cross securitise.

 

[Rolf Latham]

Oh dear. There is no need to cross - and that is why the LMI is $22k. What are these people doing???

They are cert 4 and diploma trained

Ta

Rolf

 

[westminster]

All mortgage brokers are not equal and it sounds like poor advice from the broker you saw.

I find it interesting after receiving advice from a number of brokers on here that said it would be possible to do what you want that you didn't use one of them?

 

[Rolf Latham]

So I recently contacted mortgage choice and the broker came up with this:

Leave ips 2 and 3 as is.

Move loan for ip1 to new lender with the new ppor (purchase price $700k)
I think his scenario cross collateralises the properties with the total loan of
$1,055,758 (inc $22,824 of lmi calitalised)
Total security value $1,180,000
The ppor will be p&I and the ip part will be I&o
The repayments will be $5191 (ppor $3709 & ip $1482) @4.94 intro rate

Im not happy with this scenario because:
1. Crossing will make tax deductions difficult
2. The repayments are still more than what we can afford however this can be reduced by changing to an io loan for both props
3. Paying $22, 824 lmi is a lot!!!

I spoke to a RE agent yesterday and a unit in the same block sold for $510k in march this year. So its very tempting to just sell up now, take our $150k profit (minus cgt and selling costs) and $50k of savings and buying a property with io loan using minimal deposit and 100% offset (paying p&I into offset).

I never wanted to sell any of our ips but to make life easier and to afford to buy in our prefered suburb it might be the best option at this stage in our life (upcoming mat leave and change in careers)

Sorry for the long post! Can any mortgage brokers or finance experts out there see how we can keep the ips, buy a ppor for $700-800k and keep repayments for ppor below $3400/mth using a different set up?
Or is there a good mortgage broker in sydney's south that I should contact?
Cheers!

Sha who posted above is in syd and knows his stuff

Personally I'd suggest no cross and then io with 100 %offset on the new poor

That is pi at your option



Ta
Rolf

 

[Colin Rice]

1. Crossing will make tax deductions difficult
2. The repayments are still more than what we can afford however this can be reduced by changing to an io loan for both props
3. Paying $22, 824 lmi is a lot!!!

1. Tax deductions will not be your issue it is the extra LMI you will pay now and in the future if you need to access equity due to x coll. There are a raft of other issues involved with x coll and a search of the forum will reveal all.

2. Go IO either way and use the offset to reduce interest payments while retaining the difference and some in the linked offset.

3. It will be much less if loans are stand alone and not x coll.

Dont use the broker you spoke to no matter how nice they are. They are going of their current level of knowledge and may mean well but that wont help you when it becomes YOUR issue as your journey unfolds. They will not even realise that they where the source of your issue due to poor loan structuring.

 

[Colin Rice]

They are cert 4 and diploma trained

Their mentors are also responsible. I speak from experience as I was taught the same things when I first started

 

[wylie]

I nearly had conniptions when i read the words "Mortgage Choice". I also don't understand why you didn't contact a broker from this forum. There are brokers and there are brokers.

 

[jrc]

Use a broker from this forum who posts regularly. You can see the quality of their advice from several hundred posts each. You can also see that these people are used to thinking out the box, ie working for a solution that fits you rather than fitting you into a cookie cutter solution they use all the time for everyone.

 

[Corey Batt]

Their mentors are also responsible. I speak from experience as I was taught the same things when I first started

True, there are also some shock ponies though who have come in without any mentoring or previous (limited) knowledge from branch. You see doozies like this all the time.

 

[Colin Rice]

True, there are also some shock ponies though who have come in without any mentoring or previous (limited) knowledge from branch. You see doozies like this all the time.

Being let loose from a branch on the wider market is concerning based on my experiences when I have had no choice but to send a client in to get "help" usually due to bank policy (ANZ) or remoteness.

Almost with out exception ends in confusion and undermining of my advice. I have mitigated this by telling clients to call me if they start the confusion process. Client calls me while at the bank and I direct the bank person on what needs to be done.

Have even attempted to explain why I am doing what I am doing (example would be avoiding loan contamination) and met with comments like "I have never heard of that?" and "That sounds very weird".

The level of mentoring in the industry is lacking but will personally do my best to make a difference as I pass on what I have learned (most of it from Somersoft BTW) to others as my business grows.

 

[krh83]

Hi guys, thanks for all your replies! I am so thankful to have this forum to bounce ideas off and avoid costly mistakes! Since Saturday I have been in touch with Aaron one of the brokers that posts on this site so he's been very helpful. He's on the job and things sound promising.
Currently all loans are stand alone.
We paid $11k lmi when I refinanced IP#1 so does this mean if we increase the lvr again, this will be covered already ie no further lmi payable?
We will definitely have the new mortgage as IO with an offset as we will most likely move and it will become another IP.
Since my first post there have been further gains in the market so I think our portfolio looks more like:
Ip1: value $500k, loan amount $358k
Ip2: value $480k, loan amount $322k
Ip3: value $490k loan amount $433k
Not that it makes much difference.

So we will see what Aaron comes up with and go from there.

Thanks again for all your suggestions!
Krh