Changing Lenders?

[bigman66]

Well, after being royally screwed by a bank that I probably should not name (Which Bank - I hear you ask & despite the fact that I am on a premium wealth package!!

As such I am seriously considering changing lenders.

Scenario is:

Have just sold my primary residence (Sold for 540K, current morgtage 335K and bought another property for 330K) The overall aim of this is to reduce my "bad" debt and give me more disposable income to apply to the purchase of am investment property or two in the near future)

I will be taking out a loan for apprximatly 160K to fund the purchase and some desperatley needed renovations (predomiantly paint and plaster type things and a new kitchen). After finishing the reno's I will be revaluing the property in order to establish as much equity as possible to apply to future investments

The question is, any recommendations as to a particular lender that I should be going to (or should I be talking to a broker) and is there any particular way I should structure my intial loan in order to make it as easy as possible to purchase a future investment property whilst minimising my initial repayments.

Sorry if this is a bit of an inane question, but this will be my first investment property and I am wanting to make things as easy as possible.

BTW - I am Melbourne based

 

[Rolf Schaefer]

Hi,
what you should try to do is get a 80% lend against your owner occupied and park the spare cash in an offset account to be ready to purchase IPs.

You can of course also try to go for a 90% or 95% lend depending on your individual circumstances.

Pls feel free to contact me should you wish to discuss in more detail.

 

[bigman66]

Umm,

Allright, so I have a property that is valued at $330 (assuming that the bank will take the Contract note at face value). This would mean that I could borrow approximatly $264K, leaving about 100K free and clear for investment purposes.

Even if I do park this excess in a 100% offset a/c, I would still be paying something like 1700pcm in repayments for servicing the 264K loan?

One of the things I was hoping to acheive was to actually have more money available at the end of the day (at least until I purchase the investment propertys).

 

[Rolf Schaefer]

OK,
in that case you would take out a loan of 164K.

This means you would need to have another 18K available for the settling costs (stamp duty, fees, etc).

You then go out and find IP, get an equity access loan against your owner occupied of about 26% of the value of the IP (20% deposit, 6% costs).

In your case this could look as follows:

Funds available: 205K (540K - 335K)
new home : 330K
costs: : 20K
total purchase : 350K
loan : 145K
equity available: 119K (80% of 330K = 264K - 145K)
This equity enables you to buy IP with a value of about 450K (with a 20% deposit to avoid x-coll with owner occupied). All calculations of course also depend on income, credit card limits, marital status, no of children, good credit rating, etc.

I hope this all makes sense to you. But you can always give me a call to discuss in more detail.

PLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.

 

[Les]

G'day Bigman66,

Even if I do park this excess in a 100% offset a/c, I would still be paying something like 1700pcm in repayments for servicing the 264K loan

I'm having trouble agreeing with your figures there, BM - my figures (using 6.5% IO) say you'd be paying $1430 pm on $264k WITHOUT the Offset. And WITH it in place, this would decrease significantly - try around $900 pm.

Of course, if you then took an amount out of Offset to fund the purchase of an IP, then your PPOR mortgage payment would step up accordingly... But, depending on just how GOOD the IP is, you could make your choice then, rather than now !!!


If you were talking P&I, then your figures may well be correct - and, of course, that is a personal choice (whether to go IO or P&I). But, since an Offset can give YOU the choice of monthly repayments rather than your Bank, why not go IO??

Food for thought??

Regards,

 

[Kristine..]

Hi BG

I'm a little confused as to the reasoning behind extra borrowings until you actually find and buy another property.

Please correct where I have gone wrong in the calculations:

Sale of PPOR $540,000
less selling costs 3% = $ 16,200 (should cover Agent, advertising & legals)
Less discharge of mortgage $335,000, should leave available funds of around $188,800 (say) $190,000.

Purchase of new property:
Contract $330,000
Stamp Duty Victoria $15,460
Stamp Duty on Mortgage ($160K) $604
Legals (allow) $1,000
Adjustments (Rates etc allow) $ 500

Total costs of purchase $347,564
Less Deposit of funds $190,000

Should require extra funds (mortgage) of $157,564 (say) $160,000.

Using a 30 year Principle & Interest loan at a Basic Variable Rate of 6.45%, a mortgage of $160,000 would require monthly repayments of $1006.05.

When you find an investment property, of, say, $250,000, mortgage that to 80% (no LMI required), which would have start up costs of:

Purchase $250,000
Stamp Duty $10,660
Stamp Duty on Mortgage of $225,000 = $864
Legals $1,000
Adjustments (Rates, etc) $500

Sub-Total Purchase outlay $263,024

Further funds required $38,024

Increase mortgage on PPOR from $160,000 to $200,000, with the extra $40,000 in a 'split' at interest only for 30 years - approx $215 per month.

Extra fees
Variation Fee (approx, depends on Lender) $300
Stamp Duty on extra $40K mortgage $124
Total extra expense $424
Total outlay on purchase of investment property $263,448

Monthly instalments on loan $225,000 (say) interest only (6.45%)first 5 years $1209.38 plus $215 ($40K loan) = $1,425 less $940 pcm rental income (adjust for any tax benefits or other outgoings),

Would put your total monthly outgoings at around $1,490 for the two properties.

BG, remember that old saying - 'Don't cross your bridges till you come to them?'

Until you need the money, why take it?

But then again, 'A stitch in time, saves nine!', so you could organise an 80% loan on PPOR from the beginning ($264,000), but not draw the whole lot down until you needed it,then mortgage the IP to 80%, pull what you needed from the prime mortgage, find 2nd IP, mortgage to 80%, top up with funds from prime mortgage, etc, etc, until you hit your serviceability ceiling.

In other words, there is more than one way to skin a cat. The Bank to which you refer has some excellent mobile lenders. However, as securities will be cancelled with the sale of PPOR, perhaps it is time to see what other banks & lenders can offer. A good broker should be able to show you products from a range of lenders and help you choose the loan that's right for you.

Good luck with the exciting times ahead!

Kristine

 

[Kevmeister]

Without resorting to the exquisite detail of Kristine's post , I agree with Rolf's first suggestion:

Fund your new PPOR at 80% LVR, and park the remainder in an offset account (for the moment) against the PPOR loan.

*Perhaps* you might go for a slightly lower LVR on the P&I loan and commence a small LOC. You still park your remaining funds in offset against the P&I loan. That way the LOC account is already "in place" for the future if you wish to revalue your PPOR later (on account of cap growth) to increase the LOC.

If you're serious about getting IPs consider getting one of the professional packs which sting you $X per year but don't charge additional application fees for subsequent loan applications (and the $X per year is usually well and truly compensated by the lower interest rate).

 

[bigman66]

I think that I have a headache................. Far too much to consider and take in...

Thanks for the feedback - I will probably consider exploring other lenders, and you have certainly given me a bit to think about regarding how to structure this and future loans.

My main objective was to allow myself as much flexability in taking on investments whilst minimising my committed outgoing in the near term.

I still have a LOT to learn about all this, but at least I have found the right place to start

 

[NormH]

Hey Bigman66
I know it is a bit late now, you said "The overall aim of this is to reduce my "bad" debt and give me more disposable income to apply to the purchase of am investment property or two in the near future) " but you could have move the bad debt and still kept your PPOR by creating a Hybrid Family Trust and selling in to it and saving yourself a heap in fees as you are really just selling to yourself . Anyway what you want to do now sounds great but I would consider setting up a 'legal structure' now before going any further so save yourself costs in the future and offer some protection for your assets.

As you are in Melbourne it might worth while speaking to DaleGG who is an accountant based in Melbourne.

Just my 2cents worth, I understand this isn't the forum for tax and accounting but I think it is appropriate to suggest to you to look at 'structures' before going much further.

regards
Norman

 

[Rolf Latham]

Hi BM66

I know it hasnt been said before, (hehhe) the easiest way to get some aspirin for that headache is to use a good independent mortgage broker to help you with what is and isnt possible.

Your decision making resources in IP could best be used on strategies and what property you should invest in, goal setting and risk management rather than clogging your RAM wih peripheral but very important stuff.

While doing quality broking work does not require the same level of training as say a good tax accountant, similar rules should apply - you wouldnt chase to do your own trust deeds and legal structures.

I am not against people doing their own finance work, many can actually do as well or better with their own resources, but why unless it provides great interest to you ?

ta

rolf

 

[Aceyducey]

Originally posted by bigman66
As such I am seriously considering changing lenders.

You mean you are allowed to stay with the same lender for more than one loan....

WOW!

Will have to try that sometime

We generally use whichever lender is best considering the circumstances (as recommended by our mortgage broker).

I have not seen any good reasons to be loyal to any lender, they do not appear to be loyal to their customers (even the big ones).

Can anyone point me to where I might find good reasons to use a single lender as a portfolio grows?

Cheers,

Aceyducey

 

[bigman66]

Well guys (and girls) thanks very much for the feedback and the assistance in helping out a new guy in the field.

I think perhaps that there are two main factors that I have got out of this:

1) Get a good Morgtage Broker.

2) Get a good Accountant.

In truth these are both things that I probably should have done (or at least considered) before now, but there is nothing like being beaten around the head with the fact.