Forums / Property Investing / Help Needed! / Need 80% LVR on first investment property???

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  • Profile photo of newandkeennewandkeen
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    @newandkeen
    Join Date: 2011
    Post Count: 16

    I think I am finally ready to invest, my biggest obstacle to date has been getting my partner on board for this journey. I have loads of equity in my PPOR. (My vague plan was to buy an investment now, pay off my home in entirety over the next 5 years, then buy up other investments. Partially because my partner is resistant.).

    So, being ready, I call a mortgage broker to figure out exactly where I am financially and how much I can borrow and where and conditions etc. And over the phone he tells me I will need 20% DEPOSIT!!!!!!!!!!!.

    This makes things almost impossible!! OK, I have some extra put into my mortgage that I can draw from, (some of which was earmarked for a new car which we need) and I can save a further two years and buy an investment then… and what of buying another property? I have to save for 5+ years for each property, and never put anything extra towards the home???

    OK while I want to rant about how unfair this all is, what I really want to know is whether it is true or is this guy taking me for a ride, and if so, how can I work around this? My family is not on high incomes, saving deposits takes a long time.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,110

    Taking you for a ride (that is going nowhere!)

    10% would do. You can also borrow the deposit against existing property – don’t use redraw because of tax reasons.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of newandkeennewandkeen
    Participant
    @newandkeen
    Join Date: 2011
    Post Count: 16

    OK that is a relief thanks Terryw, I meet with him on Monday so I won’t get roped into such a bad deal! (And know to walk away if he can’t offer me anything reasonable).

    But what do you mean I can borrow the deposit against existing property and not to use redraw?

    [You mean don’t get an investment loan with redraw? (I do currently use redraw on my PPOR and find it very useful). EDIT: OK thanks, because of your comment I was able to research this aspect and see offset would work much better.]

    And more interestingly to me, how can I borrow the deposit against existing property? Do you mean refinance my PPOR and increase it by x amount and use that for the deposit?

    Thanks for your answer :)

    • This reply was modified 4 years ago by Profile photo of newandkeen newandkeen.
    • This reply was modified 4 years ago by Profile photo of newandkeen newandkeen. Reason: found answer to part of question
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    e.g.
    $100,000 property value

    $50,000 loan, $20k in redraw.
    Stay with same lender, keep $50k as loan 1 – set up with offset, don’t pay extra.
    Loan 2 with same lender can be another split for $30k. Cancel redraw

    Loan 3 is 80% loan on new property with a second or same lender.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,065

    Hi Newandkeen

    20% deposit seems bizarre.

    However – if you’ve got plenty of equity in your current property then releasing enough to cover a 20% deposit/costs would probably make sense in terms of avoiding mortgage insurance.

    What’s the value of your current home and how much do you have owing on it?

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of Solomon10Solomon10
    Participant
    @solomon10
    Join Date: 2010
    Post Count: 134

    The 20% deposit may have something to do with this? Particularly if through Bankwest.
    http://www.smh.com.au/business/banking-and-finance/banks-put-brakes-on-investor-lending-20150521-gh6imi.html

    Profile photo of DeanCollinsDeanCollins
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    @deancollins
    Join Date: 2015
    Post Count: 372

    @jamie…..for us being overseas and not residents of Australia St George are requiring us to have 30% equity in our investment properties :)

    I’m ok with that because this helps them be closer to cash flow neutral but my point is banks insisting on 20% equity……I’ve got no problems with that.

    Profile photo of newandkeennewandkeen
    Participant
    @newandkeen
    Join Date: 2011
    Post Count: 16

    I have a lot of equity. I would have no problem using 20% equity securing a property. But actually paying 20% deposit is an issue, unless I misunderstand, taking money out of my mortgage, to pay on the investment property, meaning, for example, if I had 100K on the home and an investment loan for 100K, I would have to shift 20K making the home 120K and the investment property 80K.

    Yes, I think that article is talking about what is affecting me. But it is kind of ridiculous for the banks to suggest that it is giving them a buffer when they already have the ability to access the 20% equity if I defaulted etc. But they want to dampen capital growth which is bad for all of us I guess.

    So Terry, is what you are saying, is that I can use money in a separate account for the deposit, which can be part of an offset account for my home mortgage?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    If you had a $100k loan, non deductible, secured by the home you could set up a separate loan of $20k also secured by the loan.

    You would then borrow $20k from the above loan and $80k from a new loan secured on the IP = 100% borrowings with no crossing of securities. Interest on both loans will be deductible against the IP income (assuming set up correctly).

    You should never use $20k cash as you will end up paying more no deductible interest.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Newandkeen, sounds like the Broker you spoke to had no idea how to structure an investment loan.

    There are some excellent standalone investment deals doing the rounds at the moment with very sharp interest rates and no ongoing fees or charges. Bolt on a 100% offset account if you want but if you still have some non deductible debt left on your PPOR probably not of prime importance.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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