Join our investing community

Loan Advice for PPOR to become Investment

Discussion in 'Money Management' started by deadlast, 4th May, 2008.

  1. deadlast

    deadlast New Member

    Joined:
    4th May, 2008
    Posts:
    4
    Location:
    Canberra, ACT
    I'm trying to see how I can proceed to investing with my current state:

    I bought a house in Canberra (PPOR currently) in April 2007 for 335,000 (Loan Currently 317,000)
    I've been told the house is now worth around the $365,000 mark, but haven't had an official evaulation done since.

    I aim to make this house an investment property in the next 2 or so years, so i'm trying to figure out if I should change my finance strategy.

    Current loan is a Fixed Rate Loan with ING till April 2010 @ 7.39%
    Remaining Loan now is $317,000, loan was for $325,000.

    Minimum Payment is $1039.00 a fortnight, loan is for $325,000 over 30 years . I was originally paying $1050 since i got the loan and now that my pay has changed, i've been making $1420 a fortnight payments (ING Limits me to 10k a year extra payments, keeps me just under the limit).

    Given i don't hold that much equity currently, how am I best to proceed?

    Should I maximise repayments for the remainder of the loan? or should I pay minimum and put all extra into a savings account for a deposit on another property?

    When I bought the house I was on a much lower wage then I am now and never thought i'd be able to make extra repayments, thus the loan structiure

    Thanks for any advice, glad to be a member of the site.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Any chance of getting an offset account facility for the loan ?

    My general approach to property financing is to use IO loans and if you will be accumulating cash - to put it in an offset account, rather than paying down the loan itself.

    This is especially the case for a PPOR which may become an IP at some point - you want to maximise the deductible loan amount.
     
  3. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    when you make this an IP do you plan to buy a new place???

    From tax purposes, its best to bring back your payments to the minimum, and the extra $350pf you are putting in just put in an ING account (or offset if you can) and save that for when you buy your new PPOR (this should be approx 20k in 2 years time)...

    other option is $350 per fort is probably enough to cover the negative gearing on most IP's (in your price range). Use the $45k equity in your current PPOR to purchase another IP, and use the extra $350 pf to pay for the negative gearing on it. That way you would have 2 propertys working for you over the next two years. Then (as you should be on more $$s in 2 years), and as you have held IP1 for 4 years could be positivly geared, and IP2 you have had for 2 years, so it wont be costing you the full $350pf, you could use this additional amount to pay for the new PPOR costs...

    Anyway just some ideas to think about
     
  4. deadlast

    deadlast New Member

    Joined:
    4th May, 2008
    Posts:
    4
    Location:
    Canberra, ACT
    Hi Mate, thanks for the response.

    Can't get an offset account on the loan, have to wait until April 2010 for fixed period to end, other issue is, ING don't have any 100% offset accounts...

    So seems i'm stuck until then.

    I was advised that making as many payments as I could now was a priority, cause I could refinance at the end of the loan, and use the funds to borrow against another property.

    I would like to keep this property as an Investment, and also hope to purchase another, before looking for a new PPOR

    Thanks again
     
  5. deadlast

    deadlast New Member

    Joined:
    4th May, 2008
    Posts:
    4
    Location:
    Canberra, ACT
    Hi mate, as the above post, since i'm stuck with my fixed loan, was advised to pay as much off as possible, to bring down the LVR, so I could redraw/refinance at the end of the loan, and use it to purchase another property.

    So you think i'm better off paying minimum and saving as much as I can into a high interest account for later use?

    Using a calculation spreadsheet, I could have the loan down to 290,000 by end of loan, continuing the payments as is, and I really should get a new valuation done on the place at some point, just got a few things I need to fix up, ie Broken Garage Door from previous owner and just little things around the place.

    Thanks again for the advice
     
  6. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    paying it down and redrawing it, brings into the key issue of you need to refiance to extract equity... what happens if your unable to refiance ie you lose your job??

    With your figures, i would be paying everything extra into a savings account, refiance when you want and use a LOC to pay for the next deposit for your IP (so you still havent touched your savings) and use your savings for your next PPOR, otherwise an alternative is weight until you buy your PPOR and get a LOC against that to purchase your next IP... this way you can use your savings to reduce as much of your non deductible debt as possilbe and then have 3 assets working for you....
     
  7. deadlast

    deadlast New Member

    Joined:
    4th May, 2008
    Posts:
    4
    Location:
    Canberra, ACT
    Hi mate sounds good, i've stopped making additional repayments and put them into one of my savings accounts instead.

    Other then that, I guess I just wait and see.

    Thanks for the advice, much appreciated.