Hi All
I hope someone can shed a bit of light on a problem I have encountered. I have just exchanged contracts on my first investment property and only have to the 15th of this month to settle. Everything was going according to plan until today when I had a bit of a set back.
The property I bought using a mortgage broker to source out finance. I had requested an interest only loan as my idea was to do a quick reno nothing major, and rent out for higher rent around $30 to $35 a week more about $285. I had based all my calculations on a interest only loan as I had bought the house $25000 below value and well below the median house price which is $313K and unit median price is $245K in this suburb With interest only loan my property was cash +.
We went to sign the loan papers last Friday and I noticed that the terms were IP, my broker told me he would get the oversight fixed up and call me today. He did call but told me the mortgage insurance company would not allow just an interest only loan and had to be IP. This now sends my property into cash – as the extra $200 a month payment rubs out my profit.
Is this a normal thing that can happen? Or is my broker telling me a lot of S*&! and he stuffed up. I would not have bought the place if I was aware it was not going to be positively geared.
My Idea was to ultimately sell it by L/O and all the information I have says you need an interest only loan for this type of deal.
Any comments or ideas appreciated.
Kerwyn.[annoyed]
PS: (Question does townhouses come under unit or house median price)Hi Kerwyn,
Who is the lender?Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
kerwyn – the real problem may be the loan application was submitted as a P&I – by error or omission – your letter of offer would have identified the terms and conditions prior to production of the formal loan contract – you should have picked up on this then.
15th – running a bit short of time – whats the loan sum actually – the difference in P&I may be quite minimal – does it really matter? (a lot of banks assess your existing mortgages as P&I even if they are I/O when you go for another loan at any rate)
very occasionally a MI will condition a loan to P&I either in full or in part – the only other reason it is different is because of an error by the broker, or an error by the banks data processor which wasn’t picked up by your broker.
good luck and
cheers
Brendan Heagney
Mortgage Broker
07 3240 4815I have had clients ask for a IO loan and the MI came back with the requirement for a P&I product.
Your broker may be telling the truth here mate.
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 9853 year fixed rate – 6.69%
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
thanks for reiterating that point from my post simon
cheers
Brendan Heagney
Mortgage Broker
07 3240 4815Thanks everyone for the reply.
My broker is going to contact the MI tomorrow and find out why they require a P&I.
The lender is NAB and my broker said they were happy with a I/O loan. The amount of loan is $209000 rate 6.51% repayments $1133.80 month with I/O.
My rent income $285 = $1235 month gives me $101.20 cash+.
With P&I 1322.40
Rent 1235
$ 87.40 cash-
Slim margins I know, but as I said I wanted to get the equity to use as deposits on another investment property or 2, then L/O the first one. It justs makes it so much harder to L/O as I have to pass on the $87.50 a month to the buyer which really translates into $188.60 a month more. The difference between the P&I payments and the I/O loan.
Just makes life more difficult.[confused2]
KerwynAfter the IO period has finished the repayments are caculated over the remaining term.
This means the P&I repayments will be higher as the loan has 5 years less term to be repaid than would have been the case had you not gone IO.
This can often be enough to make serviceability fail if things were close to start with.
Hope my explanation makes sense.
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 9853 year fixed rate – 6.69%
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi All
Just got the reply from M/broker the MI have said because it is the first time we have bought and the LVR is 95% they want to see some of the principle being paid. The MI is GE.Now another question, as I don’t like being held to ransom and told what to do by the MI. Is it possible once I have done a bit of a Reno on the place to have it revalued then use the equity to
re-establish a loan which does not need MI and then claim back the MI charge on the original loan?
Is this possible?
KerwynPMI would have probably allowed 95% IO – even for a first property.
I wouldn’t be worried too much as the extra payments are coming off the principle, so it is not like you are losing money. Maybe after 6 months you can change the loan to PI. It may be possible to refinance the loan with another lender at IO and withdraw extra equity and to claim back the LMI.
Also with L/Os you do not need an IO loan, in fact, you are probably better off with a PI loan.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I understand that GE will give you 40% refund if you finalize in the first year and 20% refund between 1st and 2nd year.
You might want to find out what break-costs are for getting out of this one though.
Good luck!
Liz
Mortgage Lender
Thanks everyone for your impute.
Looks like I am stuck with a P&I at this time, although this may not be to bad in the long run. I don’t think there is any proplem with refinancing later, I ask my broker if there was penalties and he said there was not.
Again thanks for your help.
Kerwyn
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