First I.P loan AND car finance ??

[BradW82]

Hi all ,

Thanks in advance for any input I may get as my question is a vague one but I will try provide enough info.

I would like to know how much car finance may impact our current borrowing limit.
We have a PPOR due to be finished being built in 4-5 months . Loan of $292k , vallued at $330 k in so around 88%LVR .

We want to borrow around $200k for an IP in 12 months using savings for the deposit (10%) and costs , if we cant get a more favourable valuation on the PPOR to use the equity .

So the question is if we now get a car loan for $23000 what type of impact will this have ?
Our combined income is $115,000 pa and have 2 kids at school , no credit cards or other loans except thr PPOR .
We can get a rate of 7% from my wifes work for the car finance .

Should we either hold out on the car loan untill the IP is sorted (iffy as our car is falling apart )

Or maybe reduce the loan amount to a cheaper car ?

Thank you !!

Brad

 

[Aaron_C]

Won't have a large impact but it depends on the car loan repayments. A common trick is to increase the balloon payment (residual value) of the car so your repayments will be lower which means your borrowing capacity is less impacted.

 

[Propertunity]

We can get a rate of 7% from my wifes work for the car finance .

Slightly off at a tangent, but many of the large car companies will do finance much cheaper than that. e.g. Toyota at 2.9%, Hyundai at 3.9% and so on...

 

[Rolf Latham]

We want to borrow around $200k for an IP in 12 months using savings for the deposit (10%) and costs , if we cant get a more favourable valuation on the PPOR to use the equity .

Hi Brad

As an aside, dont use your cash to buy the IP. You have paid tax on this money

Get your banker/broker to split your current loan

say 267 k and 25 k

the fully repay the 25 k split, and redraw from the 25 k split for investment

that way your 25 is put to the best tax effective use

ta

rolf

 

[tobe]

buy the most expensive car your ego can afford. With cash.

Every $500 per month you pay on a car loan reduces the amount you can borrow on a home loan by at least $100,000 approximately.

If you secure the car loan by the equity in your house, the repayments will be lower (P&I payments over 5 or 7 years even at 1% is more than home loan repayments) but this reduces the amount of equity you can use for the next deposit.

 

[Jake D]

Also, every dollar paid as part of your car repayment is a dollar not saved for you 10% deposit.

Edit: oh hey, just hit 200 posts, let's hope my next milestone is more inspiring.

 

[Mick C]

buy the most expensive car your ego can afford. With cash.

Every $500 per month you pay on a car loan reduces the amount you can borrow on a home loan by at least $100,000 approximately.

Good advice.

 

[BradW82]

Thanks guys for the replies!!

Tobe , I totally agree with your comment regarding ego !
I cant bring myself to buying a super expensive car as the money could be used for property but we do need something reliable for the kids and wife.
Should I assume that every $250 a month on the car loan will limit my borrowing power by $50k then ?

Thanks again ,

Brad

 

[tobe]

very very roughly.

I commiserate on having a reliable car for the wife and kids. Im in the same boat. I have to top up the zafira with oil every week to keep it on the road.

Oh for the days of hooning around in the renault 12 with the rain hole open, parking on hills with a brick to stop it rolling away and to help get it started if need be....

 

[evan1875]

Hi Brad

As an aside, dont use your cash to buy the IP. You have paid tax on this money

Get your banker/broker to split your current loan

say 267 k and 25 k

the fully repay the 25 k split, and redraw from the 25 k split for investment

that way your 25 is put to the best tax effective use

ta

rolf

Hi Rolf,

Is the tax deductibility of a loan determined at the time the loan is set up or can that change at the time a redraw takes place?

 

[Peter_Tersteeg]

Hi Rolf,

Is the tax deductibility of a loan determined at the time the loan is set up or can that change at the time a redraw takes place?

Tax deductability of a loan is determined by the purpose of the loan. Given the purpose can change over time (an IP can become a PPOR and vise-versa), the deductability of the loan can also change.

 

[Rolf Latham]

Hi Rolf,

Is the tax deductibility of a loan determined at the time the loan is set up or can that change at the time a redraw takes place?

Let me explian with 2 examples

1. You have an IP loan of 50 000 that was used to buy an IP. You pay that loan down to zero. The next day you buy a car for personal use. The loan was deductible, but is no longer so.

2. You have a PPOR loan for 50 000 that was used to buy a PPOR. You pay that loan down to zero. The next day you buy an IP that you rent out. The loan was not deductible, but now is.

pls see specific advice for your personal situation on this

ta

rolf

 

[evan1875]

thank you pt and rolf.