Maximising borrowings

[narcissusford]

Hi all

First let me say, thanks to all of the contributors - this is a seriously helpful forum.

Background

• I am in the process of selling my PPOR (fully paid off) for $500k.
  
• I have made an offer to buy a new PPOR for $950k.
  
• For the purposes of my question, please assume that my current PPOR will settle before I settle on the new PPOR.
  
• I am seeking to maximise my borrowing capacity as I intend to rent my new PPOR in a few years.
  
• I have briefly spoken to a mortgage broker who informs me that he *thinks* he can secure an interest only loan for me in the amount of $760k at or around 5.25%. I will then park the remainder of my funds in an offset account.
  
• I have seen that loans.com.au have a "blackboard" special for a loan product that meets my requirements with a lower interest rate of 4.75% (as compared to 5.25% offered by the broker). From my discussions with Loans.com.au, I can borrow up to $650k on my income.

Question

• The broker's loan product will cost me an additional $2,500 per year in interest repayments. However, I will be able to borrow approximately $110k more if I use the broker (and therefore increase my deductions down the track when I convert the property into an IP).
  
• Obviously there is a tension between my objective to maximise borrowings and my goal of minimising interest repayments. Based on these circumstances, which loan product should I pursue?

 

[jonmardell]

if you intention is to rent out the property later than you have to maximise the borrowings against it. It will cost you more long term if you go the cheaper option. there are some other cheap variable options out there at 4.99 but need to know more about your income to see if you service.

thanks
Jon

Hi all

First let me say, thanks to all of the contributors - this is a seriously helpful forum.

Background

• I am in the process of selling my PPOR (fully paid off) for $500k.
  
• I have made an offer to buy a new PPOR for $950k.
  
• For the purposes of my question, please assume that my current PPOR will settle before I settle on the new PPOR.
  
• I am seeking to maximise my borrowing capacity as I intend to rent my new PPOR in a few years.
  
• I have briefly spoken to a mortgage broker who informs me that he *thinks* he can secure an interest only loan for me in the amount of $760k at or around 5.25%. I will then park the remainder of my funds in an offset account.
  
• I have seen that loans.com.au have a "blackboard" special for a loan product that meets my requirements with a lower interest rate of 4.75% (as compared to 5.25% offered by the broker). From my discussions with Loans.com.au, I can borrow up to $650k on my income.

Question

• The broker's loan product will cost me an additional $2,500 per year in interest repayments. However, I will be able to borrow approximately $110k more if I use the broker (and therefore increase my deductions down the track when I convert the property into an IP).
  
• Obviously there is a tension between my objective to maximise borrowings and my goal of minimising interest repayments. Based on these circumstances, which loan product should I pursue?

 

[Shahin_Afarin]

Who is the current lender? Are you sure you have done crossed all bridges to see if you can service with the current lender?

What rate is the current lender offering? - with that LVR and loan amount you should be able to get cheaper than 5.25%. It comes down to other factors such as offsets, redraws, etc which is why your broker has chosen a lender than offers 5.25%.

Are you going to converting the PPOR to an IP? If so I would consider borrowing 105% of the loan than contributing 25% cash to the transaction (which is what I am assuming you are doing)

 

[Aaron_C]

If you want cheap rate, then go for loans.com.au. Or try UBank. Not much more to it.

 

[Jamie M]

Hi all

First let me say, thanks to all of the contributors - this is a seriously helpful forum.

Background

• I am in the process of selling my PPOR (fully paid off) for $500k.
  
• I have made an offer to buy a new PPOR for $950k.
  
• For the purposes of my question, please assume that my current PPOR will settle before I settle on the new PPOR.
  
• I am seeking to maximise my borrowing capacity as I intend to rent my new PPOR in a few years.
  
• I have briefly spoken to a mortgage broker who informs me that he *thinks* he can secure an interest only loan for me in the amount of $760k at or around 5.25%. I will then park the remainder of my funds in an offset account.
  
• I have seen that loans.com.au have a "blackboard" special for a loan product that meets my requirements with a lower interest rate of 4.75% (as compared to 5.25% offered by the broker). From my discussions with Loans.com.au, I can borrow up to $650k on my income.

Question

• The broker's loan product will cost me an additional $2,500 per year in interest repayments. However, I will be able to borrow approximately $110k more if I use the broker (and therefore increase my deductions down the track when I convert the property into an IP).
  
• Obviously there is a tension between my objective to maximise borrowings and my goal of minimising interest repayments. Based on these circumstances, which loan product should I pursue?

Check if the no frills provider actually provides an offset or if it's just a redraw facility as that could have expensive implications in the future.

Cheers

Jamie

 

[narcissusford]

Hi all

Thanks for your responses.

My broker has given me the impression that my borrowings are limited by my income, and nothing more. Given that I have $500k cash at hand (upon settlement), I asked whether I could use this as "security" (for the lack of a better word) to get a loan for 100% of the property value (or close to it). The broker said that this was not possible (although I am not sure if he fully appreciated what I was suggesting).

The reason why I spoke to the broker in the first place was because I thought he would be able to suggest some 'creative' options for me that would enable me to maximise borrowing capacity by leveraging the cash that I have. But this does not appear to be the case.

TheFinanceShop: The broker did not identify any particular lenders, but instead merely referred to the fact that he could secure an interest rate of "around" 5.25%.

 

[narcissusford]

Check if the no frills provider actually provides an offset or if it's just a redraw facility as that could have expensive implications in the future.

Cheers

Jamie

Hi Jamie

I believe that the Loans.com.au "offset / redraw" account (as it is nebulously advertised) is a genuine offset with its own account number that is separate from the loan account.

 

[Shahin_Afarin]

hmm - for some reason I don't have confidence that you can't service the loan with your current lender but he/she has all the information so we would take their word for it.

You can get a "100%" loan but don't cross securitise the properties. Keep them separate - this is very important.

Also you should be given a few options (I mean lenders) so you can consider which is best suited. Inevitably each would have pros and cons but also consider longer term and not this single transaction.

 

[Rolf Latham]

Hi all

Thanks for your responses.

My broker has given me the impression that my borrowings are limited by my income, and nothing more.

on the surface it sounds like you are trying to make a non decision.

I dont believe you have enough information to make that call yet.

Your primary decision might be to seek more information from the broker as to why what where etc. Its highly likely that you are dealing with a transactioal broker that writes deals between traffic lights

ta
rolf

 

[Marty McDonald]

That is not actually that easy to calculate. I have had a crack at on a spreadsheet PM if you wnat a copy I cant seem to attach it. Assumptions would of course alter the results. Here are my assumptions.

* 10 year projection.
* owner occ for 2 years then rent out for 8.
* average rate over the 8 years the property is an IP is 5.75% pa with broker lender and 5.35% with loans.com.au ie 0.4% differential remains constant
* 30% is your marginal tax rate and that remains constant.
* Rent yield is a constant 4%
* Property value increase in value by 3% pa

Result:

* $650,000 x 0.4% differential x 2 years when owner occ= $5200 in loan.com.au favour
* increased deductions in 8 years as an IP with higher loan amount = $6851 in broker loan favour

net result = broker loan wins marginally but bugger in it really.

 

[jonmardell]

If you wanted you could borrow 100% of the purchase price plus costs and secure it by your cash that would be put in a term deposit. Some lenders allow this. You would have to work the figures carefully as interest on the term deposit would be taxable. you would not want to do this for a long time.

Hi all

Thanks for your responses.

My broker has given me the impression that my borrowings are limited by my income, and nothing more. Given that I have $500k cash at hand (upon settlement), I asked whether I could use this as "security" (for the lack of a better word) to get a loan for 100% of the property value (or close to it). The broker said that this was not possible (although I am not sure if he fully appreciated what I was suggesting).

The reason why I spoke to the broker in the first place was because I thought he would be able to suggest some 'creative' options for me that would enable me to maximise borrowing capacity by leveraging the cash that I have. But this does not appear to be the case.

TheFinanceShop: The broker did not identify any particular lenders, but instead merely referred to the fact that he could secure an interest rate of "around" 5.25%.

 

[narcissusford]

jonmardell: I thought that was an option as well, but the broker I spoke to acted as if it were a ludicrous idea.

Marty McDonald: awesome effort - I did a similar calculation and arrived at the same conclusion.

Rolf: Agree - I don't think the broker has given any real thought to how I might achieve my goals, or any concrete information about suitable loan products.

I am no longer in a rush to sort this out as the offer I made on the property I wanted was rejected by the vendor yesterday (crushing!).

Again, thanks for the feedback.

 

[jonmardell]

sorry to hear the offer did not get accepted. The broker you spoke to might not have done a loan before secured by a term deposit. They are not that common.

jonmardell: I thought that was an option as well, but the broker I spoke to acted as if it were a ludicrous idea.

Marty McDonald: awesome effort - I did a similar calculation and arrived at the same conclusion.

Rolf: Agree - I don't think the broker has given any real thought to how I might achieve my goals, or any concrete information about suitable loan products.

I am no longer in a rush to sort this out as the offer I made on the property I wanted was rejected by the vendor yesterday (crushing!).

Again, thanks for the feedback.