OTP finance

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From: KJL .


Opinions required please.

I signed a contract for an OTP unit some 15 months ago, which is now nearing completion.
I put in a 5% deposit, with the balance on settlement - which I'm funding by way of a loan.

The reason I bought the OTP was (a) to get capital growth without having to draw down anything for 15 months (a risk, I know); and (b) because research suggested it was a 'wholesale' deal so even if capital growth was negligible there was still some value in it at purchase.

At the time of exchange I had a loan already sorted out with a lender which required / will require me to put in some more cash - nothing which committed me, but was by way of a certificate issued by the Bank saying they'd lend me the money if my financial situation didn't worsen materially or something along those lines.

However, my mortgage broker (who I only came across since the OTP purchase, and who I've used only once when I bought my own home) says that he can arrange for the loan to be made against the current value of the IP, as opposed to the contract price. i.e. the IP was 200k purchase price, but if (for example) it's now valued at 250k then he says he can get me a loan of, say, 80%, which means I put no more cash in - and handily pay no mortgage insurance either - which would be a great result.

Is he right - can that be done? I would have thought a lender would only lend against the contract / purchase price, as opposed to the valuation - although I admit I can't give you any good reason why. Or, am I going to have a nasty surprise after reading your responses and have to tip in more cash...?

Kev.
 
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Reply: 1
From: Gee Vee


Isn't this one way of raising the deposit on your next IP?
 
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Reply: 1.1
From: Frank Shead


You have to get new finance and a new valuation.
Should be okay. Mind you it may be totally different when one sits down face to face with the actual lender or Mortgage broker. Lots of finance facilities say they will do something with you until the application is submitted.

Frank Shead
 
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Reply: 2
From: Peta McIntosh


St George will lend you 80% of valuation or 90% of purchase price. I have just done a loan for myself on an OTP, purchased $159K now valued at $209K. Other lenders may do the same depending of your circumstances and other real estate, if any.
 
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Reply: 1.1.1
From: Rolf Latham


Hi Frank

Are you suggesting that lenders actually promise one thing and sometimes provide another ?


Rolf
 
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Reply: 1.1.1.1
From: Michael Croft


I was involved in a rushed commercial property deal in 1977 where a certain bank (one of the big 4) gave a verbal of finance prior to the auction. The place was purchased and when the hand went out for the monies the bank say "oh, sorry we can no longer offer that finance, but our wholly owned financial services company will accommodate you."

At 2% higher interest it almost killed the deal and made the whole process a real battle. Moral of the story? Always get it in writing and have it checked by a pro. Not one of my better moments but I was just 19 at the time.

Michael Croft
 
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Reply: 2.1
From: Bruce Graham


G'day,
Sorry to ask a stupid question, but what
does OTP stand for?
I can't work it out for the life of me.
My visiting this web site is quite rare these
days,I don't seem to have any time to spare.
Bruce G. (Sydney)
 
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Reply: 2.1.1.1
From: Bruce Graham


G'day Terry,
Must of left my brains at work.
I would never have worked that one out.
I bought a "otp" positive geared commercial
strata unit in Chatswood,just north of the Sydney Harbour Bridge.

In two and a bit years the growth hasn't gone
anywhere.My return is 6.5%.
They're building towers of units every where
in Chatswood.
I'm now roaming the western suburbs looking
for houses on reasonable size land for
future duel occ.
Thanks for the answer.
Bruce G.(Sydney)
 
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Reply: 2.1.1.1.1
From: Frank Shead


Rolf, This is what is being said.
A good example, I have bad guy prospect. Doesn't pay mortgage for a long period of time. Facility advises of repossession. Prospect becomes my client and achieve written status of acceptance of loan with proviso of valuation. At the very last minute this mortgage manager (Brand new to Australia) pull the plug on the loan. Original lender extremely annoyed and take client's mother out of the home just prior to Xmas. Frank Shead feels guilty, for letting client down. Manages to Rewrite Loan with another facility and the loan paid out last day of 2001. A very good New Years present for Mum. I will never place any business with this new Australian Finance Co. Promise you every thing, give you nothing.
Frank Shead
 
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Reply: 2.1.1.1.1.1
From: Rolf Latham


Frank

I was just having a tongue in cheek. This sort of thing is much more common thatn most people think.

Ta

Rolf
 
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Reply: 2.1.1.1.1.1.1
From: KJL .


Thanks for the feedback.

I guess the answer is not to count my chickens - ie make sure the new (or indeed any) finance is signed before you act in reliance on it. But at least I know that it's possible to do it in theory.

Nonetheless, I won't be re-spending my original 5% deposit just yet... ;0)

Kev.
 
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