What type of loan would be best

Hi I need help from any of you who know about loans.
Some info:
PPOR..House paid for worth 500,000
Savings...150,000

I have very little income, only 40,000 a year as my husband is self employed and I draw a wage through his business.

I have put in an offer for an IP for 300,000, don't know whether to get a LOC or a standard loan. The assests are in my name only. Thanks for your help
 
u need 2 loans

1, borrow $240k against the new purchase, just a basic interest only loan

2, borrow $80k at least against the home, preferably interest only with an offset account.

don't use any of your savings on this purchase
 
Bigtone
Out of curiosity why wouldnt you use the cash unless the cash is earning you more than 6.5% (current bank mortgage rates). Because of tax?

Lets assume she could invest $100k cash into the property rather than borrowing an additional $100k. (leaving $50k "fun" money).

Interest on $100k loan @ 6.5% (current bank rates). $6,500/pa
Interest earned on $100k @ 4% $4,000/pa

On $40k salary tax rate approx 25%pa.
$6,500 tax deduction on interest paid - $1,625
$4,000 taxable income on interest earned - $1,000

She will be net $1,875/pa worse off. Plus any fluctuation in IR will have a further negative impact.
Of coarse, any adjustment in the above will affect this.
In addition, by sinking the $100k into the property it will be +ve geared, meaning there will be no affect on her current life style (and even adding money to her pocket each month, or repaying the IP quicker).

Plus you mention using an offset account - What is the benifit of getting the loan then?
In addition given her low income status, I would be inclined to put the IL on a P&I rather than IO (probably over a 15-20 year period).
 
Regroy.
I posted the above out of curiosity, as it is not what I would do (but Im not you - so dont take this as any level of advice, just my thoughts).

Given your low income, and the fact that hubby has his own business I am guessing that tax is not a large issue for you. Personally I dont like doing things for their 'tax benift' (why pay $1, to save 25c?).

Assuming you have a) no other debts (car, credit card etc) and b) no other plans for the cash - I would be inclined to get the IP +ve geared and pay it off over the shortest possible term. In doing so, adding cash to your pocket each month!
Where Bigtones suggestion works well is that you keep the cash, to make further investments with (more IP's?). However it means taking a mortgage against a currently unencombered property - which I personally avoid.

I guess it all depends on how agressive in investing you want to be, and what your goals are.

Congratulations on putting yourself in such a comfortable financial position.

Blacky
p.s Im not a proffesional at this, just an investor myself.
 
In my view, both Bigtone and Blacky are right - depending on your personal situation being goals (short term and longer term), comfort level with debt, etc, etc.

Your original question was whether you should get a LOC or a "standard loan". Well, that depends! ;) On your goals, etc...

I would suggest you find a good broker (plenty of whom can be found on this forum) and get some recommendations.
 
Hi All, Thanks for the replies.
Rolf, No debt at all.
Blacky, My position is that I am late 40s so am looking to buy a few properties if I can while we are still working, kids off to uni, etc.
Thanks for your help, all much appreciated I am dunb when it comes to this financial stuff so thanks for spelling it out!
 
If you've got zero debt, your most tax effective option is to simply borrow your deposit from and equity loan against your existing house. Since the purpose is to purchase an investment property, this debit is fully tax deductable.

You can then loan the balance against the new investment property. This way you've effectively borrowed the full purchase price plus costs in a very tax effective manner.

Finally, you use an offset account against the investment loan on your PPOR. If you've got nowhere better to put your cash savings, put it into the offset account.

There's several lenders who could accomidate this very easily. The best lender will depend on the specifics of your income, but rest assured, it can be done.
 
Hi

Because your goals are not 100 % compatible on the surface with your current reourcess, you need to be careful with ow you structure things.

Whats been said above all applies, with a variation.

Draw as large a loan as you can obtain against the Home, use only for 20 % deposit and costs.

I would NOT use any of my cash, instead place this on an offset account attached to one of the loans so that theis reduces the amount of interest paid.

Your cash is tax paid and as much as possible could be retained as a buffer..

If you allow a lender to structure your loans ( or a broker that is bank trained) they will likley corss collateralise your hme and the investment.

That may not work for you if you want to buy more than one or 2 Ips, because t wnt give you the flexibility to take new IP loans between diff lenders.

ta
rolf
 
Hi

Because your goals are not 100 % compatible on the surface with your current reourcess, you need to be careful with ow you structure things.

Whats been said above all applies, with a variation.

Draw as large a loan as you can obtain against the Home, use only for 20 % deposit and costs.

I would NOT use any of my cash, instead place this on an offset account attached to one of the loans so that theis reduces the amount of interest paid.

Your cash is tax paid and as much as possible could be retained as a buffer..

If you allow a lender to structure your loans ( or a broker that is bank trained) they will likley corss collateralise your hme and the investment.

That may not work for you if you want to buy more than one or 2 Ips, because t wnt give you the flexibility to take new IP loans between diff lenders.

ta
rolf

Ummmm I resemble this I think as I had around 18 years working in the bank industry. I'd be pushed to remeber more than a handful of instances that I've ever crossed securities.
 
Well as per my knowledge Bigtone has provided a good option to borrow money. Still there are many other options available if you try to contact any good loan advisor. I think he/she is the best person who can help you in proper direction.
 
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