Hi Everyone,
I bought my first IP in Sydney a few years ago (IO with 100% offset) and am currently renting. ith the interest rate outlook I am planning to buy my next IP in Sydney in around August 09 (cheaper than renting). I plan to live in this next property for 12 months, then rent it out and then move back to my hometown and buy a home for kids/family in late 2010. I am a bit rusty on the mortgage products out there these days and am just curious if IO with 100% offset is still the best product to get for this next property. I am happy with this structure and cant see any reason why i wouldn’t use this for all future property purchases…even my family house. Any comments?
I am looking at 2br units in the inner west of Sydney in the 350-400k bracket but am a bit spooked with the outlook of the property market i.e. frequent reports of 10-20% drop in 2009. Do you think these types of units will see the same sort of price reduction?
Thanks in advance
Yes given the scenario certainly would suggest IO with 100% offset.
if you intend to live in the property for a period of time you wont want to be depositing funds (salary, rent and the like) into the original offset account as you might as well save interest on the non deductable loan whilst you reside in it.
Just make sure the loans are not cross collateralised and ideally you dont want to use any of your offset funds as deposit.
Structure it correctly and it will work with you for years. Never trust your Bank as they will have no idea.
Richard Taylor | Australia's leading private lender
Thanks for the advice Richard,
Can you please explain “cross-collateralised” and what i need to do to avoid this?
At the moment i have all of my savings in the original offset account…is this the best place for them?
These are my only savings and was planning to use these for the deposit etc for the next IP. I don’t see any way to avoid using these funds for the deposit….any ideas?
I was under the impression that i needed at least a 5% deposit to obtain a loan with an offset account…is this still the case?
Thanks again
A cross collateralised loan is where the loan is supported by multiple properties or securities and is a definate no no.
Your Mortgage Broker should be able to structure the deal to ensure they are not crossed.
Do you have any equity in the current IP ? If yes i would be using this to access your deposit.
If you intend to reside in the new home short term you would want the offset account to be linked to this loan rather than a deductable IP loan.
110% lvr is available if you have suitable equity in the original property.
Richard Taylor | Australia's leading private lender
A cross collateralised loan is where the loan is supported by multiple properties or securities and is a definate no no.
Your Mortgage Broker should be able to structure the deal to ensure they are not crossed.
Do you have any equity in the current IP ? If yes i would be using this to access your deposit.
If you intend to reside in the new home short term you would want the offset account to be linked to this loan rather than a deductable IP loan.
110% lvr is available if you have suitable equity in the original property.
Richard Taylor | Australia's leading private lender
Thanks Richard,
I have already utilized some of the equity in the property to invest in the sharemarket in March last year (not the best move in retrospect).
The property may have increased in value slightly since this point and there may be around 10-15k of equity still available using the 90% LVR that Adelaide Bank applies. However i am not sure how the banks forsee the sydney market outlook at the moment and therefore valuation may be totally incorrect.
Either way it seems that unlocking the equity should be the first avenue i pursue to get the deposit before i spend my savings. Is this correct?? i.e. i should get whatever equity out of the house no matter how small
Thanks again for your help
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