Forums / Getting Technical / Finance / How to buy a property with the least deposit?

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  • Profile photo of picklesampicklesam
    Participant
    @picklesam
    Join Date: 2004
    Post Count: 55

    Hi guys, have to move at the end of the year, with the current market I don’t want to sell my PPOR (which is paid off) at a loss (bought $400k, worth $350k) so I’ll rent it out and buy a new house. My budget is about $500k. Now I have $200k cash but I don’t want to put all of it towards the new house. Is it possible to put down $50k deposit, and after the loan is approved/i’ve bought the house I’ll make an extra repayment of $150k, will that $150k be liquid? ie redraw? Can I avoid mortgage insurance by using my current PPOR as guarantee? Thanks!

    David Thiu
    Participant
    @david-thiu
    Join Date: 2017
    Post Count: 75

    Offset accounts might be worth looking into. Money placed in this account will reduce the amount of interest on your loan and you can withdraw the funds as you wish. I did some calculations for my dad and he needed to have $7,000 kept in this account to break even with the fees charged by the bank.

    Profile photo of diceman99diceman99
    Participant
    @diceman99
    Join Date: 2005
    Post Count: 8

    Put a line of credit on your current PPR.
    On the new house get a loan with 100% mortgage offset account.
    Use $50000 from the LOC to fund 10% of Purchase price
    Use $50000 from your cash to get the other 10% of deposit
    This will cover your 20% deposit to avoid mortgage insurance.
    Then put your remaining cash into the 100% offset account
    Offset account is better than a redraw facility.
    Its potentially possible for the ATO to assume your loan is paid off on a property if monies are paid into a redraw account then taken out

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

    Wouldn’t use a LOC on your PPOR as the rates of interest are too high compared to a equity loan.

    Depending on the long term objective there are a couple of loan structures you could use.

    If the new property is to be used as a long term PPOR then maybe some clever debt re-cycling might achieve the eventual goal.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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

    Borrow against the main residence as and use this 25% as deposit and costs and borrow 80% against the new property.

    Even though you may live in the new property consider the tax consequences of if you were to move out so as to structure things in a way where all the interest would be deductible on the full purchase price plus costs.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    There’s a few pathways you could go down depending on:

    *whether the property would potentially be a PPOR or an IP one day
    *what you would like to keep the funds liquid for
    *what your plans are for future investing potentially
    *where the current PPOR is
    *borrowing capacity/personal scenario

    You could:
    -release equity on your existing PPOR and use this to cover 100% of the deposit costs for the new PPOR
    – use some equity and some cash towards new PPOR
    – use all cash towards new PPOR and then release equity after settlement

    Depending on what your longer term plans are will dictate what is the best pathway. Whatever you do – do not provide your existing PPOR as additional security to guarantee/cross secure your purchase – this is incredibly poor structuring which can leave you stuck with the lender and having to follow what they decide they want you to do in the future with your funds instead of you being in control. A lot of people who work directly with banks/some lazy brokers get caught out with this and can’t always untangle the mess.

    Best bet would be to call/email an investment focused finance broker who can listen to your plans and formulate a strategy which will fit not only your needs in terms of buying the next PPOR, but also what flows on from then.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

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