Offer Has Been Accepted!

[Thann]

After many false starts, with vendors wanting more that we were comfortable with, we have had an offer accepted.

Offer - 170k
Loan - 180k (inc costs)

It's on a 12 month lease, with 11 months to go, at 250pw.
Would that be a gross yield of over 7%?

We are planning to use one variable loan for this, as it seems interest rates are coming down. Our finance company has quoted 8.27% variable for the loan.

 

[Rolf Latham]

Hiya Thann

If thats a stand alone 106 % loan, then thats a great rate

ta
rolf

 

[Thann]

Sorry, should have given more info.

This is a special rate because our PPR loan and insurance is with the same company.

 

[Qlds007]

Thann

Hate to say i think you have missed Rolf's comment.

If the 106% is a standlone rate without using any other security then it is competitive even excellent. If they are using your own property as security (which personally i would ever advise) then it is not even in the ball park.

If you cross collateralise the loans now then all you are doing is digging a bigger hole for yourself down the track.

 

[Thann]

I'm not sure what you mean.
(once again, I didn't give all the info)

We are planning to get two loans to total 180k, one will be against the PPR, the other against the IP. Plan is to payout the IP loan against the PPR first.

Similar to what we had before, two loans (one fixed, one variable) using offset account and extra payments to get rid of it quickly.

 

[Qlds007]

Sorry Thann

Now i am confused.

Good to see that you are going to take out separate loans to make up the 106% but i am lost when read Plan is to payout the IP loan against the PPR first.

Normally you wouldn't pay down the investment loan at all but maintain an interest only loan especially if you have any other non deductible debt.

The rate you quoted sounds expensive for what you are appearing to achieve.

 

[Thann]

We have 11 mths to go on a fixed rate of 7.35%, during that time we will use an offset account on the small IP loan and place any extra money directly into the loan.

This is to get it paid down sooner, and the property less negative (for our SANF).

In 11 months time, the offset account will be switched to the PPR loan, and depending in interest rates we may just leave it as variable. (Our long term projection assumed >9% interest rates at that time)

 

[RumpledElf]

If they are using your own property as security (which personally i would ever advise) then it is not even in the ball park.

If you cross collateralise the loans now then all you are doing is digging a bigger hole for yourself down the track.

Why is it so evil to use your own house as security?

This is what we did when we bought a second house, it let us do it with no money down. Would have been very tricky doing it any other way, for some bizarre reason paying tonnes off the mortgage over 3 years (reduced the loan by about 30%) only gave us $3k in redraw.

 

[Thann]

I think the problem comes from having more than one property securing a loan.

If you want to sell one of the properties, I suppose it would be harder to do.

 

[RumpledElf]

Can't see how it makes it harder to sell. Sell one, both loans are gone. Sell the other, both loans are gone and we have $100k cash in hand. And the bank hasn't seemed to show any interest in the third property the subdivision will create ... strange beasts, banks.

 

[Qlds007]

Rumple

It is not the fact of using your own home as security more the way in which the loan and dcoumentation are structured.

If the loans are cross collateralised then you are really just digging a hole and waiting for your lender to push you in.

If you raise the deposit and costs against your PPOR and then do a separate loan on the IP itself at least you get to hold the spade and can dig yourself out if needed.

 

[Thann]

That sounds like what we will be doing

2 loans - each secured by separate properties.
Small loan - using equity in PPR. Used for costs and deposit. IO, Offset. Plan to get rid of this early.
Large loan - mortgaged against new IP. IO, not paid off at all.

When the small loan is gone, we will do this again. Last time it took 2 years to get rid of.