Thanks also to Tracey/Ozperp for your detailed reply.
You're welcome!
Doublebrick said:
Just want to note in terms of achieving flexibility, P&I loans also allows redraw on any extra repayments, which I assume would serve the same/similar function as an offset?
Good point - NO! Not to the ATO, anyway. Redrawing funds from a loan account has different tax implications than if you put funds in an offset and withdraw them from an offset account. See, for example,
this thread.
Doublebrick said:
As an aside, is it the case that refinancing to obtain the equity is not always beneficial whether IO or P&I? Although we have falling interest rates now and therefore better cashflow and serviceability, the property may be revalued at a lesser value than what you anticipate so you might have less funds to borrow.
Two questions here.
1) Is it a good idea to pull equity out of an existing property? That depends what you want to do with the funds! If you think you can invest the funds and earn a return substantially better than your mortgage interest rate, then go ahead.
If you're planning on taking an overseas holiday, and have used your offset as a place to park the funds while saving, then yes.
If you didn't plan to take an overseas holiday and didn't save for it, but notice your PPR has gone up by $20K so you can borrow that to pay for a holiday, then that doesn't sound like great financial management, no.
2) Could you end up with a low valuation and the bank asking you to repay some? Yes, that's possible, but unlikely. Banks generally would only order a re-valuation in extreme circumstances, eg really big market falls, high LVRs (>90%), and/or poor payment history.
If you want to check if you have any free equity, then ensure
you retain control over the valuation process. Don't ask the bank to order a valuation, and put them in control! Find out who the bank's panel valuers are, then approach a valuer yourself - ie make yourself the client, not the bank - and order an
assignable valuation, which will probably cost about $400 for a house.
If it comes in at the figure you want (ie high),
then you then ask the valuer to "assign" the valuation to your lender (which seems to involve writing the lender's name on the cover
) and approach the lender, valuation in hand, and ask for an increase.
If the valuation doesn't come in higher, first try and persuade the valuer that they got it wrong. I've had about 50% success in persuading valuers to increase valuations when I gave them evidence as to why I thought their valuations were too low. If that doesn't work, but you feel confident that a higher valuation is justifiable, you could try paying your $400-ish again and ask another one of the panel valuers for a valuation. I recently had a 22% variation between two reputable valuers for my PPR, so don't assume that all valuers will put similar values on properties!
If you don't ultimately get a higher valuation, you simply don't tell the lender that you've been through this process, and try again in 6 months or a year (however long it takes for market conditions to improve).
