help in Canberra

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From: Moyna Mercer


I have been reading the 'posts' on this site and obviously there are many informed and helpful people contributing. Could you please help me? I am being posted overseas for three years and would like some advice.
I own my own house ($22O,OOO approx) and wish to buy another (need a larger place) before I go, to live in when I return.Approx. income would be about $lOOO p.m. for the two properties for the time that I am away. This would all go to the mortgage. I am not sure of the best way to go about this to gain the maximum advantage.Would I get an I&P loan or interest only - the loan would be for the full amount - about $23O,OOO.
I would be most grateful for any help.

 

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Reply: 1
From: Bob Ward


Hi Moyna,

I presume that you own your present home outright. If this is the case, as you will receive no interest deduction in relation to the rent received for your current home, it would be prudent for you to borrow interest only to purchase your new home.

You can then claim the total repayment as interest expense.

I would be inclined to fix the rate to cover the period that you will be away overseas and then convert to p & i when you move into the home yourself.

 

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Reply: 1.1
From: Bob Ward


Hi Moyna,

Just had a look at my earlier response. I didn't make it clear that by fixing the rate I was referring to an interest only loan.

 

[Simon]

Reply: 1.1.1
From: Simon .


Moyna,

Sounds like a pretty straight forward problem to solve. As long as you still have suitable income whilst you are overseas then you should be able to lend the full amount to buy the second property. Probably secured against the first one which I assume you own outright. However this is all hypothetical as I don't know your exact details and requirements.

Give a mortgage broker a call, there are a few on this forum now who will help you out at no charge.

Whether you fix the rate, pay P+I or interest only are issues for you to decide but any reputable broker will explain the alternatives and help you choose what is right for you.

Simon Macks
Mortgage Hunter
0425 228985
[email protected]

 

[Simon]

Reply: 1.2
From: Simon .


Just rereading your post and I see that I didn't really give you the answer you were after.

Whether to pay P+I or IO? The advantage of IO is that you will pay less into the mortgage and all that you do pay will be tax deductible. Many investors prefer this approach.

However you are buying something that will be your home on your return. In this case you might also be more comfortable with paying a little extra and reducing the principal so that you are actually getting closer to your goal of paying it off.

As I said earlier this extra is not tax deductible however some folk see it as a kind of enforced saving plan.

I guess bottom line is the amount you are willing to spend each month...minimise it by IO or pay a little extra!

Simon

 

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Reply: 1.2.1
From: Moyna Mercer


Thank you to Bob and Simon for your reply to my cry for help. Is there any way that I can borrow the full amount to buy and not mortgage my house which I do own outright? Is not the security of the investment property not enough given that I will be getting rents from both properties for the first three years? I am trying to keep my options open i.e. perhaps I will keep the intended second purchase as a rental property when I return and enlarge the one I now live in in which case I perhaps would want to borrow to do the renovations. Any ideas?

 

[Simon]

Reply: 1.2.1.1
From: Simon .


Moyna,

Unless you have a deposit you may need to borrow against your home. Banks will lend up to 80% of the new properties value (Loan to Valuation Ratio or LVR). They do this to safeguard their investment in case the worst happens and they need to dispose of the property to settle the loan. Often they will lend up to 95% if you take Lenders Mortgage Insurance to protect them against loss (This insurance does not protect you!). LMI can be expensive and possibly isn't something you need to take out given the level of equity you have in your home. Although if you do it may be a tax deduction.

Given your home is valued at $220 000 and your anticipated borrowing for a home of similar value then I don't see you having too much problem with an LVR which will be well under the 80% level - closer to 50% depending upon purchase price.

Simon Macks
Mortgage Hunter
[email protected]
0425 228985