Hi Everyone
I finally managed to purchase my first IP (I live in Melbourne and the IP is also in Mel). Now it comes to getting an IP loan. the IP costs $260k and my borrowing power is up to $450k, can you please advise whether I should get a 105% Investment loan (Interest Only) i.e including stamp duty and other costs or I should just get 80% loan (to avoid the mortgage Insurance). THe propect rental is $260/wk.
Your feedback is vital to me!! and thanks in advance.
Hi I am a little lost with what you have said "I have finally purchased my first IP" how have you done this if you do not have the finance already arranged or at least in process or have you just put a contract on a property subject to finance?
yes, we put 'subject to finance' clause. We know how much we can borrow, however we are not quite sure whether we should borrow 100%.
Borrowing the full amount is not a prob, but you will have higher interest payments, probably mortgage insurance (a total waste of money; if you can avoid it do it).
These costs cut into your returns and your cashflow.
Use a cash deposit if you’ve got it.
It also protects you in the event of a downturn and you may need to sell.I am in a similar situation with you and am opting for the 105% IO loan, only because I dont have the full cash deposit to put towards it and dont want the IP to get away. If I had the cash deposit I would probably chose the 80% option. The cash I do have is going towards renovations on my own property so I guess in the long run I can still use the equity after reno's to purchase another… all the best with it
Remember Steve always says that if you have a plan to get into debt, you need a plan to get out of debt. So how strong is the investmet. Can it service a 105% debt at the more than likely higher interest or do you need the buffer.
What is the plan for the property? Reno and sell, or buy and hold etc. Could have a bearing on your decision
Best wishesChris
Odenska
If you can afford the 20% deposit, why would you consider going 105%?
Think about what your long term strategy is?
If this is your first IP, from the point of view of banks/lenders profiling you as a credit risk, I'd go with the more cautious approach (if you can afford the 20% deposit). Later on when you purchase other IPs, this will probably look more attractive. Going 105% first up may suggest you've got no further capacity (unless you had an equally huge income to service the loan).
At an 80% lend, you might be able to refinance later and take it up further in overall LVR, if it's required for your next IP, plus you will be on a bank/lender's books with a credit rating towards having an IP mortgage that is fairly low risk.
In summary if you intend having 3 or more properties over the next couple of years, this first decision could be one factor in a critical platform in your capability for future mortgages. Get's back to what your overall strategy and goal is? One property or many?
Thanks everyone for sharing your thoughts. I do have 20% deposit but I will need to take from my Own Home's redraw money. That's why I am scractching my head to decide whther or not I should do 100% loan.
My strategy is to buy and hold. As we are working full-time and have 1 child, so its harder to do Reno and sell.I do agree with Gary's concept as I donot wish to get myself having so much debt. But when it comes to reality, its harder than I thought. Can you please advise whether I should take money out from my own home's redraw.
Hi odenska
I totally understand where u r coming from, like I said in a previous post, I am in a similar situation to you. If you want to use the redraw from your own home to make your own home better (which is what we r doing) then go with the 105% loan. If your current home is fine and u r just looking for an investment use the redraw from your house to purchase your IP, thats what most investors do when starting out. Using the equity in your home is a great way to get started with IP's.
I guess at the end of the day we cant realy advise u what to do only guide u from our own experiences. Each of us has totally different financial situations aswell.
all the best
Hi once again no one is going to make the decision for you at some point you will have to make it yourself, by using the equity in your own property you will save on the Mortgage Insurance however by maxing out the loan on the invesment property you should have a better tax advantage.
Why not spin it past your accountant the LMI may be deductable anyway in some form or other
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