Finance

[WebBoard]

From: Mike .


Dilema, Dilema, Dilema
From: Robert
Date: 6/18/00
Time: 11:03:30 PM

I'm just about to settle on my first IP, after having contracted it back in December '99, Yeah.

But now I'm in a bit of a quandary on a situation that will be cropping up very soon.

I have purchased a new property in Brissie (these are real figures) for $195 000. I took vendors financing 80% bank - 20% vendor. Now this is where my sticky point comes out. The vendors finance is at 12% IO on $39 000 that needs to be paid back in 2 years. And $156 000 in a LOC. The property has gone up in value by about 15-20%. The now query is: (I'll list this in 3 parts for ease of reading.)

1/ I can repay the vendors amount in full in approx 15-16 months. Leaving me with a LOC mortgage of $156000 on a property that has gained to $215-$220 000. Leaving me with a +geared property to the value of $50-80 per week.

2/ Refinance the property in 6 months time to fully pay out the vendors finance and have the property mortgaged to a LOC of $195000. Leaving the property -geared to the value of $15-20 per week.

OR

3/ I can pay approx $10-12 000 in the next 6 months of the vendors finance and refinance the property to $184-186 000 to have a +geared property to the value of $10 per week.

WOW, I've just had a blinding flash, why don't I refinance to the value of a LOC at $195 000 being option number 2 and then with my extra $10-12 000 pay this off the LOC. That way I still have that money available to me when I want and the property is then at a +geared ratio.

You've got to love these LOC's.

Any response to the above would still be greatly appreciated.

Robert

 

[WebBoard]

Pierre

Reply: 1
From: Mike .


Re: Dilema, Dilema, Dilema
From: Pierre
Date: 6/19/00
Time: 8:59:50 AM

Robert,

I assume the reason you went with the vendor finance was becuase you did not have any other security to borrow against for your deposit/costs.

Do you want to pay off the property as fast as you can, or do you just want to pay IO to help with the cashflow?

Here's what I think you might want to consider...

If the property really has gone up in value to $220000, have it independently revalued, get a copy of the valuation, and seek refinancing.

If you borrow 90% of the new value, you will get $198000. This will be enough to pay out the Vendor Finance, and LOC, and will still leave you with a few dollars. I assume your LOC would be costing you about 7.9% per annum. Looking at current IO rates, you should be able to pick up IO finance at a variable rate of 7.6%. You may get an even better deal at a 3 year fixed IO rate - I think the NAB is offering 7.35% fixed for 3 years at the moment.

So, not only have you got yourself a few extra dolloars, you have secured a lower rate on your finance, and have been able to borrow 90% of the value of the property.

Of course, if you want to pay off the house in as little time as possible, then by all means, go for the LOC, and look into Option 2. That property really gets treated like many of us treat our residential properties and loans. Pay it off as fast as you can so you can access additional equity to buy more property.

Have a look back at some of my previous posts that list the things you should be looking for with your finance. My mortgage broker has referred me to three lenders that meet the criteria. An enquiry with one or more of these lenders, or my broker may be of use to you.

Drop me an email [email protected] if you want names. Also, I'd be interested to know where your property is and what sort of rental you are looking at.

Good luck, Pierre