Should we make the switch?

Hi everyone,

I've been doing some research on whether we should get out of our hideous loan with St. George. Our only option is ANZ because they are the only people that will lend us 95% LVR (because we have a Credit Card with them).

Here's the breakdown:

We are on a St. George Quick Start, No Deposit Loan - taken out three years ago. We fixed our rate for 3 years at 8.44% and have been paying an extra 1% interest for mortgage insurance. Once the fixed rate has expired, we revert to SVR (currently 7.8%) + 0.5% (making OUR rate 8.3%). St. George have us over a barrel on this loan product and will not switch our product or do any deals.

We owe around $334,000 ($330,500 + $3500 in exit fees, additional interest etc) on the property today. ANZ sent a valuer around who valued it at $350,000.

ANZ are prepared to put us on their 3 year fixed rate loan at 7.1% if we can come up with $5500 to cover the difference between what they can lend us, and what the pay-out is. We CAN borrow this money from my fiancee's parents.

We were all set to do it, until I (duh!) realised that Mortgage Insurance would be financed with the loan. Essentially, RIGHT NOW we owe around $330,500 on the principal of the loan. If we refinance, we'd be paying lower interest (by far), BUT our new principal amount would be around $339,500.

I'm thinking that reducing equity by nearly $10,000 on a property that already has such little equity is stupid. We'd find we owe just as much on the property in three years as we did today.

I haven't wanted to waste a brokers time, as ANZ IS our only option, and we've already done most of the paperwork etc. I just wanted to ask some money-savvy people what they thought.

Pay less interest, but increase loan amount? Or just keep plugging away at a high interest rate and hope it drops? We're getting married and were really looking forward to some extra cash...but we need to think about our future too, and what's best in the long run.

Thanks guys,
Sarah.
 
Hi,

It's already an IP - has been for 1.5 years (we had to move for work reasons - the rental income pays the rent on the place we're living on).

We do a Variation to Tax Routine each year, which puts about $400 a month extra in our hands (rather than waiting until tax time), but we can't afford to put that back in to the loan unfortunately - we have unsecured debts that we're paying off with that money.

We have made stupid decisions in the past based on what we want/"need" 'RIGHT NOW' (such as gathering unsecured debt!! Or debt at all...!), and we want to stop doing that, which is why we're questioning whether or not to do what's best now or to slog it out for better results in the long run.

It's not a property we will keep forever I don't think. It's a townhouse (we'd like to buy a house when we have kids), and I would think we'll look at selling it within 3-5 years.
 
Are you paying IO on the loan currently? I think you'd need to sit down with a calculator & work out the difference in what you'd be paying on the loan now if you keep going with it & the possible new loan.

There are some brokers on here that may be able to answer your query...perhaps you could PM them?

Getting married will possibly increase your 'bad' debts? Can you do it on the cheap so you don't start out your life together with even more debt?

If you're selling in only 3-5 yrs, I don't know how much equity you could build up in that time if house prices are flattening & IR may rise.

What are your short & long term goals with property/money/investing? This may help you work out what's best now.
 
No, I wouldnt suggest switching. You might try and get St george to look at your ANZ approval, and ask them if they can match it, or compromise.

From what I remember about quickstart, the early repayment penalties, and interest rate margin fall off after a couple of years?
 
We're paying P+I at the moment - always have. Not sure what our goals are...we would really LOVE to keep this property as an investment when we go to buy our next place, but I don't think we'll have the ability to do this financially. The door closes on the deal at ANZ on 31 December, so we don't have much time to think! It's doing my head in.

St. George has been very inflexible, and won't negotiate.

The interest rate margin (SVR + 0.5%) lasts for the remainder of the loan term according to our contract. We can choose to lock our rate with them - they're offering 8.59% for three years.
 
Its hard to foresee what will happen in the future. So lets deal with what we have now. Stay with St George, and let it rollover to variable, and keep paying roughly what you are paying now.

Go to ANZ, find another $5000, increase the loan amount, and perhaps reduce the payments marginally?

I'd go with the first option, at least until your goals become clearer. I wouldnt fix either until you knew what your plans were, with either ANZ or st george....
 
Thanks guys,

That's what I thought.

I guess we are just doomed for now.

My fiancee is now just wanting to cut our losses, sell. and put our normal mortgage repayment amount into saving for a deposit to buy elsewhere in a few years.

Life just isn't great at the moment!
 
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