Being a foreigner and in anticipation of moving to Australia, can I seek some information on the basics of financing a property purchase for investment in Australia. I recently purchased an apartment and would be most grateful if someone could explain the basics. Please excuse me for asking such basic questions.
1. Interest only – this means for the first 5 years banks allows us to pay interest on the loan based on straight line method of calculation?
What happens after 5 years? How does the bank get its principal back? What should be the strategy?2. Valuations
Is it common for valuations to be lower than the purchase price? For new and secondary market. As a foreigner I had bought a new one where the valuation was lower and was told that this is not unusual.Thank you.
I am no expert in property investment yet, but with my limited knowledge here’s my penny of thoughts.
if you have good credit and has the ability to pay/service your loan, I think the bank would probably like you to be on interest only because it get more money from you. if you are paying interest plus principal, then you are paying down the part that makes them the money (that’s the principal). if your terms is 5 years interest only, that means after 5 years then you have to pay both the interest plus principal to the bank. but most owners will probably refinance within that 5 years back to interest only mortgage, the only lender I know of that do not let you do interest only is Macquarie Bank if you have done this twice already (total of 10 years interest only).
on valuation, unless you are in a down market or in an area that properties are loosing value then the appraisal could come lower than the price you paid for the property. otherwise you were too eager to own the house so you paid more than market value for your property. I think most of the times, the bank appraisal value could be lower than your own appraisal value (your own valuer’s appraisal). if the values of these two experts are too significant, then perhaps both are incompetent or didn’t go to the same school/read from the same bible?
so a simple rule is that it is best to buy the worst property in the best area, rather than to buy the best property in the worst area :D
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This reply was modified 9 years, 2 months ago by
CharlieX.
1. You can usually extend the interest only term or refinance to another lender at a renewed interest only term.
2. Valuations don’t often come in lower than purchase price. However – for refinancing, it’s not uncommon for the valuation to be lower than the clients estimated value of their property.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
In addition to the above “generally” if you are putting down a 20% deposit the bank won’t do an evaluation especially the main banks. Its more if your using Lenders Mortgage Insurance they will more likely do one.
To save their butts if they do evaluate, the evaluation will generally come back 5 – 8% below market value.
Ask more questions, if you don’t ask you won’t know :-)
Cheers SJ
SJ | Fast Passive Income
http://www.fastpassiveincome.com
Email MeHelping you build additional income to help finance your portfolio visit www.fastpassiveincome.com
Gidday! Harv and welcome to Australia when you eventually arrive!
To answer your questions:
1. Yes you are correct, that Interest Only is based on a ‘Simple Interest’ calculation. 5 years Interest Only is common among most lenders however, there are other lenders such as ANZ that provide for a 10 year Interest Only term. You should be aware that an Interest Only loan will cost you significantly more, 10’s of 1,000’s of dollars more over the full 30 year loan term than commencing repayment of the principle from day 1.
You don’t have to refinance to another lender mortgage brokers might prefer you to, putting aside the fact that this will cost you a range of $500-$1,000 of your hard earned money, they will benefit from many thousands of dollars more commissions.
Generally you can apply for a new Interest Only term with the same lender at little, or in most cases, no cost to you!
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2. This depends upon where and when you purchase an off the plan property. If the property is due to be completed and settle (paid for) in a market experiencing an oversupply and or distressed property sales, such as is being experienced currently in the Melbourne CBD, yes it is not uncommon.
Conversely in a healthy property market with strong demand the valuation will usually be returned at the purchase price and on some occasions higher.
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CashBack | Mates Rates Mortgage Brokers
http://matesratesmortgages.com.au/about-us/mortgag
Email Me | Phone MeMates Rates Mortgage Brokers - "Turning Home Loans into Passive Income"
Definitely wouldn’t say that purchase valuations go below purchase price very often, less than 1/100 times. Was this an OTP deal perhaps?
Depending on the lender, you can either roll over to another 5 year interest only term, refinance to another lender/internally to gain another 30 year term or revert to principle and interest. P&I loans are where you will start paying back that principle.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
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This reply was modified 9 years, 2 months ago by
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