Hi,
I would like to know if it is better to borrow 95% or 80% in my situation. Say I can afford to buy a $400,000 property for investment.
80% = 320,000 loan, ie 80,000 deposit, repayment pa of 22400
95% = 380,000 loan, 20,000 deposit, repayment of 26600
mortgage insurance of say 7000, i.e need 27000interest rate say 7%
difference between 80000 and 27000 is 53000
53000 pay into the 95% loan straight away, so save interest, and can redraw 53000 + 26600 interest payment = 79600 for a deposit for another house in 12 mths time without refinancing.
OR 80% loan, can redraw 22400 worth of one years interest repayment out after 12mths to buy another ppty, which might not be enough, ie. need a 95% loan for second ppty.
Therefore, at the moment, I am thinking that 95% loan is a better option, rather than the 80% loan which makes my money stuck there.
The other thing I want to know is that if a broker tells me that I can get a preapproval of 400,000 and I buy a 400,000 ppty does that mean that I cannot buy any other ppty until another 2-3 yrs later when I have more deposit money or income increases.
Also, if borrowing 95%, can I redraw up to 95%, i.e. all the interest /repayments that I put in or is it only up to 80%.
Thanks for your help.
Hi Magic32,
It all depends on your future goals. It is obvioulsy more expensive to pay LMI, but this will leave you free cash to use elsewhere (btw if you contribute a 5% deposit and other costs, you can capitalise LMI for most loans). There is no right or wrong answer, it is a metter of what works best for your strategy.
If you do use a 95% loan, and it is for investment, make the loan interest only and you don’t have to worry about redrawing. You can use an offset account to reduce your interest if you have excess cash.
Regards
Alistair Perrywho’se offering Interest Only Loans with Offset accounts?
..and are they reducing the Interest payments only or the Principal (ala ST George.
Spoke to my bank..al my loans are FI-IO and they wont wear an Offset account
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorHi Redwing,
Try CBA and ANZ, there are others as well.
Regards
AlistairI’ve used RESI for IO with an offset
Rgds
BuylowI’ll start with baby steps!
I was watching some Peter Spann videos over the break and he made a good point on this. It doesn’t really matter if you pay for LMI if your property is growing – the amount becomes insignificant. eg. if you pay $8,000 LMI on a $400,000 property that is growing at 5% ($20,000 pa).
It is tax deductible and the left over money will allow you to buy the next one quicker too.
If you only have a pre-approval now for $400,000, you may still qualify for more as the potential rents for the future property will be able to be taken into account too.
Best to get a 100% offset account for the left over money too.
Terryw
Discover Home Loans
Parramatta
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I have written an article about borrowing more than 80% for API.
See http://www.prosolution.com.au/articles/gear.pdf
Cheers
Stu
Hi Stuart,
I remember your article well, it was one of API’s best. After reading it we decidede to put up a 10% deposit on the next property we purchased early last year, and we will continue to do the same in the future. I beleave that if we had of used a 5 or 10% deposit when we first started out, we probabaly would have 9 or 10 properties now instaed of 7.
I therefore like the use of LMI as it may get you closer to your goals, and a secure and comfortable retirement.Thanks a Million Stuart..( literally ) [specool]
John.
Hi Magic32,
It really depends on what you can afford. It looks like you have a good disposable income and high borrowing capacity.
If you want to get maximum properties in the short term and make the most of your capital then 95% with LMI is the way to reach your goals sooner.
With a redraw facility you can redraw up to the loan amount only, this does not include the interest repayments but can include any extra repayments you have made onto the principal.
You need to check on this with the broker when you are choosing the loan. Make sure you get what you need.
Regards
Tracey[biggrin]
[email protected]I am pleased you enjoyed the article John. I have employed this strategy personal also. Makes sense to me if you are a long term investor.
Cheers
Stu
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