Home loans & deposits

[CGP]

Hi All

A shout out for free advice...

The signs are there that our landlord is going to sell 'our' house out under us at the end of the lease which got me itching to be an owner again. I spoke to the Bank and I need at very least a 5% deposit + about $20k for costs (rates, conveyancer fees etc) + about $13k for insurance. That means that you need about $48k in cash for a $420k house.

Does anybody know of any lenders who would need less cash up front or, better still, has anybody used such a lender?

Thanks!

[GarethDavies]

It all depends on what your salary is and personal assets etc. The banks do an overall evaluation and each have certain individual requirements. I know that BOQS can do 100% LVR with No insurance needed as well as full offset account even on fixed term if you earn over 200k a year and jump through other hurdles. I had to put down at least 10% deposit and got 4.54% fixed for 2 years in Jan 2014. I know a lot of people here in Brisbane, but my best bet would be to chat to a few independent mortgage brokers and a few banks directly and try compare them. Its not always just the interest rate offered. Also be aware of the terms of the loan etc. Get as much information as possible and try make an informed decision. If you want to get the ball rolling I can give you a guy in Brisbane's e-mail just to chat to but have a look around yourself to find the best rate and terms that will suit your personal budget and circumstances. Good luck!

[SurferMan]

@ Gareth,

Nice one for posting this mate.

@ CGP, be aware that the actual interest rate is actually a "shady" financial instrument. So be aware. Also, make sure you try and get the bank to allow you to allocate any extra funds to the capital balance first, and not to the interest! I am working on an app that will eventually allow people to have an interest free mortgage. I am sick of banks working people over.

[Cranzy]

Hi All

A shout out for free advice...

The signs are there that our landlord is going to sell 'our' house out under us at the end of the lease which got me itching to be an owner again. I spoke to the Bank and I need at very least a 5% deposit + about $20k for costs (rates, conveyancer fees etc) + about $13k for insurance. That means that you need about $48k in cash for a $420k house.

Does anybody know of any lenders who would need less cash up front or, better still, has anybody used such a lender?

Thanks!

The insurance you are talking about, is this Lenders Mortgage Insurance? As that gets added to the homeloan (so you pay that off) ...

Conveyancer fees are around $1500, what other costs are you referring to (to get to $20k) .. Don't have to pay stamp duty if you are a first time home buyer here... and then depending if you buy established or build new, you get first home buyers bonus..

[MomOfTwo]

@ Gareth,

Nice one for posting this mate.

@ CGP, be aware that the actual interest rate is actually a "shady" financial instrument. So be aware. Also, make sure you try and get the bank to allow you to allocate any extra funds to the capital balance first, and not to the interest! I am working on an app that will eventually allow people to have an interest free mortgage. I am sick of banks working people over.

Surferman, thank you for this advice, as well as thanks to Gareth. Question though to you, what do u mean by allocate extra funds? Do u mean, say, we get a big yearly bonus, and want to shove that into the house loan, are you saying we must make sure it goes into the actual price we borrowed and not into paying off the calculated interest?

I can't wait for that App , ill be the first to buy it, hurry up :-)

[GarethDavies]

" Please never implement this advice before consulting professional advice as your personal circumstances need to be taken into account."

There are many strategies depending on your personal circumstances. If you borrow money to invest ( generate a return ) those borrowed funds are tax deductible.

If you have an offset account with a balance of 50k and a loan of 300k, the interest is worked out on 250k. So you save interest in this way and therefore also the time it would take to pay off the loan reduces. ( an option )

If you have a redraw facility and build up 50k equity due to additional savings every month or a down payment, and then you decide to draw this money out for a share portfolio and or investment property, the interest on this additional 50k borrowed will be tax deductible, as well as whatever you lent for the new IP. (Investment Property )

As apposed to the offset account that offsets the interest component for your loan. It would be prudent to seek advice around the actual numbers regarding IP's/liquid investments and the tax strategies available when considering different lending/borrowing facilities at the bank!

Its good to know about a few future options as this can impact your thinking going forward on what lending solutions your require to be set up initially. Good luck with the purchasing of the home and please keep us informed! Also I am keen to see about this new app and how you pay NO interest?

One strategy that I have seen for the fortunate few that have the funds, and please there are many strategies that one can implement, - would look something like this.

If you have 400k cash -

1. You purchase a property put down 100k borrow 300k with a redraw facility.

2. Then pay into the redraw facility your 300k after the loan has been set up.

3. You then draw it out again (300k) and open an investment portfolio either liquid - ( Shares ) The interest component borrowed for your redraw will be tax deductible and the dividends received from your income investment portfolio can also to a proportion offset the repayments made and or used to build the investment portfolio.

You will have more exposure to the markets long term. ( Investment of 300k IP ( flat ) or Share portfolio, and your primary home worth 400k. Thus a 700k exposure for the long term and income from the portfolio and tax deductability from the redraw. Instead of just a paid off home worth 400k which usually would free up about $2200 a month bank repayments or about 27k a year with no tax deduct ability etc -

Please never implement this advice before consulting for professional advice as your personal circumstances need to be taken into account. and the numbers need to be crunched in front of you. There are also different strategies and risks to take into account as well as 2 incomes,. The risks of loosing work etc!

You would need additional funds to borrow to make this an effective strategy as well as understanding that the markets could go up and down for a prolonged period of time.

Debt in this way also needs to be in the name of the highest earner and the income component to the lowest earner or a non earner for tax benefits. Sorry for the long winded e-mail, i just thought it time to blast of some info that I chat about on an ongoing basis.

Please always do your own homework and consult with professionals. When i first arrived it took me a while to get my head around the differences compared to SA. over there things work differently and the mindset around the far higher interest rates etc leads to at times, not the most efficient structures in my experience.

Good luck and hope you get that property soon.

I hope this gave some insight into some available options.

G.

[CGP]

Cranzy - in Victoria (as I understand it) the 1st home owners allowance only applies to new homes (ie newly built). so, stamp duties are payable on your first home if you are buying an existing house. Not sure about the insurance, but what you say makes sense. I will ask the bank about that - I got the impression that they wanted it up front.

Gareth - thanks for all the advice and effort.

[acmac]

Hi. We've recently obtained a home loan with offset account. I just wanted to know whether interest earned on the offset account is taxable? the interest shows up as a credit on my offset account, so I was just a little unsure. 

 

Would appreciate any help with this. thank you 

Edited November 16, 2016 by acmac
Needed to elaborate

[Waylander]

On 6/5/2015 at 8:50 AM, CGP said:

Cranzy - in Victoria (as I understand it) the 1st home owners allowance only applies to new homes (ie newly built). so, stamp duties are payable on your first home if you are buying an existing house. Not sure about the insurance, but what you say makes sense. I will ask the bank about that - I got the impression that they wanted it up front.

Gareth - thanks for all the advice and effort.

 

Regarding the LMI (lenders mortgage insurance):

 

Quick example using easy numbers.  Say the property you want to buy is $100k and the bank values it at $100k.  The bank wants a maximum LVR of 95% (LVR = loan to valuation ratio) - so the MAXIMUM loan the bank will advance you is $95k. However, because the LVR is >80% the bank will insist on LMI being taken out - lets say for argument sake that this premium amounts to $5k (not realistic amount - will be much less - but used for this example).  

 

Now, the soon to be ex-owner of the property wants $100k, the LMI provider want $5k and the bank will only advance $95k - you will need to stump up the $10k difference (5% deposit and $5k LMI).  

 

On 5/29/2015 at 0:53 PM, Cranzy said:

The insurance you are talking about, is this Lenders Mortgage Insurance? As that gets added to the homeloan (so you pay that off) ...

 

Now, as Cranzy said, you can add the LMI to your loan and pay it off, however, it is just funny money cos, the bank will still only loan a MAX of $95k.  So, if they pay the LMI for you (and add it to the loan), they will then only have $90k available to fund the purchase of the property.  The soon to be ex-owner still wants his $100k - so you need to come up with the difference of $10k.