What Loan to Get for my Situation?

[noisuf]

Hi Everyone!

I'm going to be in the hunt for finance early next week because we were successful in purchasing a property today...after much anguish so I'm stoked!!!

Very much interested in your opinions as to which instituation you may suggest I follow up with and whether I should go full variable, full fixed (5 years?) or split. Any other general advice is most welcome!

Here's my situation:

1) Purchased a place for $620K where I will be renting it out for minimum 5 years before I'll move there through rebuild or extension.

2) Had pre-approval from ANZ for $600K prior to making offer. I will be paying stamp duty out of my own $170K funds (offset in current home loan).

3) I already have a loan with the ANZ for the house am living in for at least next 5 years (becomes IP after), $180K remaining, house valued at $450K. It's a package where I get 0.7% discount off variable with no fees whatsoever. I'm expecting if I went the full variable option, I would get get at least 0.8% discount.

4) Due to the equity in my existing home, I can borrow $600K without having to pay mortgage insurance...IF...I go with the ANZ for this new loan.

5) If I had the choice, I would like to go with another institution to diversify loans, especially if you guys say go full fixed option for 5 years...as there is a big difference between ANZ's and NAB's rates for example. However, NAB will not be recognising the equity in my current house so I will not be able to borrow $600K from them (they said I could borrow up to that amount) due to LVR.

6) Have good experience negotiating variable loans in the past. Have no idea about what to ask or expect for fixed or split loans as they vary so greatly between institutions.

Thanks in advance!

 

[Rolf Latham]

Hiya Noisuf

I reckon the way to work this one to suit what you want could be

1. Go and speak with a broker to see if whats proposed can work for YOU

2. Get a loan from the ANZ as a SEPARATE facility secured ONLY to your current place at 180 000. 180 new plus 180 old = 360 / 450 = 80 % of the value of the place. Something like their SVR on IO with 100 % offset, or maybe one of their LOC products as a last resort.

3. Get a loan from a different lender for 480 000. Use 120 000 of the loan secured against your existing place, and 20 k xtra to pay the stamp duty. put YOUR 20 k spare cash into an offset account linked to the OLD 180 k loan.

In this way you have

1 The second loan with another lender as per your wish ( which often makes sense)

2 You have borrowed to your max equiyt position but have held back a 60 000 in buffer ( 40 000 from the new loan, and 20 k existing cash)

3. You have prevented the loans being cross collateralised.

4. You have borrowed more than ANZ would give you. While on the surface that seems riskier,properly managed its actually much safer than going out on a limb with no buffer in most cases

As to, do I go fixed or variable.......there are many many soft data things that we have no insight here, and to provide any useful comment would be hard. Suffice to say, you are already aware that there are some big differences between fixed rates between lenders, but there are alos product differences that may influence a decision, not just the rate per se

ta
rolf

 

[noisuf]

Thanks for your reply!!! I'm very intrigued by your suggestions as I wasn't thinking about restructing my current PPR loan at all...but it's definitely touchable if it helps. I was going to do this myself but it seems my situation requires a broker!

A few questions and full info on my situation:

1) Get a loan from the ANZ as a SEPARATE facility secured ONLY to your current place at 180 000. 180 new plus 180 old = 360 / 450 = 80 % of the value of the place. Something like their SVR on IO with 100 % offset, or maybe one of their LOC products as a last resort.
If I did this, would I be reducing my offsetting on PPR (I have $220K cash without deducting deposit for IP), and reducing my negative gearing on IP? But I like the potential to reduce positive gearing 5 years down the track when it becomes IP.

2) You have prevented the loans being cross collateralised.Is cross-collateralising when you borrow money for one property against another?
What is cross-collaterlisation and reasons why you wouldn't do it?

3) You have borrowed more than ANZ would give you. While on the surface that seems riskier,properly managed its actually much safer than going out on a limb with no buffer in most cases.
Due to my cash reserves...would it still be advisable to borrow more? The fleeting though came through my mind that the ANZ calculated my serviceabilty resulted in $600K pre-approval. If I borrowed less than that from ANZ, I would have thought that another lender's calculations would result in something close to $600K - {amount extra on top of $180K from ANZ}. Or is an extra $60K easily attainable through two lenders?

Here's my full situation that I will put forward to a broker, I noticed some small errors and missing info above:

1) $600K pre-approved from ANZ.

2) $190K owing on $450K PPR, $260K equity. Loan with ANZ. In VIC.

3) Purchased $620K IP. $35K extra for transfer costs. In VIC.

4) Will swap between living in current PPR and IP just bought in around 5 years time.

5) $220K in cash (offset account of PPR) before $62K deposit for IP...$160K if deposit deducted.

I want to try to achieve the following, please let me know if some of my objectives are not advisable:

7) Max neg gearing for IP

8) Different lenders for IP and PPR

9) No mortgage insurance to be paid

10) Maintain current PPR variable discount of 0.7% with 100% offset facility. No fees.

11) Need to transfer current PPR and loan to wife before the 5 year PPR and IP swap as my PPR will be positively geared based on current loan amount owing + expenses vs rental income.

12) I've been told that I can transfer my PPR to my wife in VIC without paying stamp duty and still have the loan under my name. I would have thought that for taxation purposes, the loan needs to be transferred to her too though? Should I at least transfer the ownership to her asap in case VIC gov decides to remove the stamp duty exemption between partners?

13) Something that might put a spanner in the works for 11) above is she owns a investment property already which is $300K value with $150K owing. Close to positively geared...I'd say in around 2 years time depending on interest rate movements. She is currently on mat leave as we just had our second child and won't be returning to work part time until May next year. Due to being part time, she'll be earning less than $40K gross per year. So I doubt she'll be able to service both her current IP and take over our PPR? (but at least she won't have dependents on her loans as my 600K preapproval takes into account 3 dependants, my 2 kids and her).

Such a complex situation...................................

 

[Perp]

I was going to do this myself but it seems my situation requires a broker!

Good idea. Not just your situation - I think a broker adds value to almost anybody's situation. (Exception: those who shop just on rate and have no plans to invest further beyond PPOR.)

What is cross-collaterlisation and reasons why you wouldn't do it?

May I recommend you read a couple of blogs I've written on finance?

Types of loan

Accessing equity and cross-collateralisation

Such a complex situation...................................

Not really. The variety of loans and their conditions is complex, though, and that's why a good broker (and there are several on this forum; PT_Bear is down your way) adds a great deal of value to your team.

 

[noisuf]

Ozprep, many thanks for your pointers. Looking at my financial situation, none of the factors force me to cross-collateralise and be more at ANZ's mercy. Thanks heaps!

 

[noisuf]

I've been thinking overnight...I may be better off paying the LMI on the IP to help with maximising negative gearing?

Also, I got a real bargain for the IP (private sale, vendor did not market well) so the actual sale price is not reflective of market value. Is there a possibility of getting a lender to value the property or do new loans always use the sale amount for LVR purposes?

 

[Bradsdad]

I've been thinking overnight...I may be better off paying the LMI on the IP to help with maximising negative gearing?

Also, I got a real bargain for the IP (private sale, vendor did not market well) so the actual sale price is not reflective of market value. Is there a possibility of getting a lender to value the property or do new loans always use the sale amount for LVR purposes?

The lenders will look at the lower of either the COS price or the valuation. Down the track though the "bargain" will be useful with any future valuations assuming either positive of neutral growth. Should you do some improvements to the new property you may have grounds for a new valuation in the short term if you wish to access further equity.

Are you currently on the ANZ Breakfree package or the Professional package. I ask as there maybe more scope for pricing discounts depending on which you have.


Regards
Steve

 

[Perp]

PT_Bear is down your way

Oh yes, and Bradsdad. Sorry, Steve. And Kristine - though I've not seen her much on the forum lately.

 

[noisuf]

Should you do some improvements to the new property you may have grounds for a new valuation in the short term if you wish to access further equity.

Are you currently on the ANZ Breakfree package or the Professional package. I ask as there maybe more scope for pricing discounts depending on which you have.


Regards
Steve

Hi Steve, no improvements planned in the near future...until the big one around 5 years from now...total rebuild or massive extension/renovation project.

On a professional package from 2002 with 0.7% variable discount and no bank or ongoing fees. Costed me $600 to apply initially.

 

[Bradsdad]

It was a great package back then and you had the Home loan Interest Saver (offset account) available also. The HLIS is now no longer available and ANZ's pricing department doesn't usually budge over a 0.70% discount. With your new level of borrowing they may do a 0.8 to 0.85% on total lending under the Breakfree package.


Regards
Steve