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Best way to structure mortgage loans

Discussion in 'Real Estate' started by Leannemumof3, 4th Jun, 2012.

  1. Leannemumof3

    Leannemumof3 New Member

    4th Jun, 2012
    Sydney NSW
    Hey, your opions and advice on below would be much appreciated.

    I am wanting to rent our house out. (The area we live has high rent demand) and buy a bigger house for my family. We have time on our side so it doesn't have to be now. We are more than comfortably doubling our repayments.

    So a house is up for sale in the street i want to live. I was going to wait a few years however whilst the market is low it may be good to do now.
    Our house was very recently valued at 320k. We owe 160k

    The most we would offer for the new home is $450k.
    Combined income is $100k

    Would the banks lend to us and What would be the best way to structure the loans?
  2. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    In my opinion, the best way would be to change the existing loan to interest only and then set up another split on the existing property by borrowing up to 80% LVR. Ie a second and separate loan using the same property as security.

    Then when you go to purchase the new home use this second loan as deposit and then borrow the remainder via a third loan.

    Advantages are that the security properties will not be crossed collateralised. ie third loan will only have one security.

    Also make sure you get a 100% offset account on the third loan. This loan could also be IO or PI depending on your circumstances.
  3. GregR

    GregR Well-Known Member

    13th Jul, 2009
    Berwick Vic
    If you believe that the current price for the house you eventually want to live in is good value now, why not look at to buy it as an investment property (IP) for the next few years and then when your finances are sufficient, move into it and convert it to your own home.

    A couple of reasons, the house you live in now you have a $160k loan, interest not being tax deductible. I presume you do not have a sizeable deposit available so to purchase the house in the street you will need to borrow 100%+. If it becomes your PPOR the interest cost is all non deductible. If you purchase as an IP and borrow as Terry suggests, refi and LOC with another lender for the balance, interest all becomes tax deductible, you have a tenant in assisting you play for it and some tax benefits depending on rental income. Build up your savings by way of offset and when you are ready, move into that home up the street, pay down the loan to manageable proportions and your existing mortgage of $160k (again convert to interest only) becomes deductible if kept.
    Do the numbers to make sure it can work for you.

    Alternatively you could simply sell your existing home to start with approx $160k equity for the new home.

    If you need to move to a bigger place to live in now and want to keep your existing home (to convert to an IP), consider renting a bigger place for a few years and still be able to buy the new place. You now have 2 IP's, one most likely positively geared (consider ownership transfer into lowest income earner), buy the new IP in name of highest earner.

    There are a number of ways to approach this, above are some of these. My view it is about achieving your goals in the most financially effective way possible.

    Good luck