question on loan type & general advise

Hi Guys,

I am looking to buy a ppor in (westmead nsw) the prop was advertised for 439K, vendor is ready to sell for 428K. have done the relevant research ( reports, visiting the surounding etc ), i think the prop is worth about 420K looking at the residex reports for the suburb.

we are going to tell the agent that we would like to visit the property once more before making an offer for it ( this weekend) so have this week to sort the financials out.

we are planning on a deposit of 70K , so a loan of about 358K. since we need LMI, will work this into the loan ( assuming this is possible, bankwest told me it was) so loan may come upto 365K. our combined income is 107K before tax pa, no kids. (yet) haven't yet taken FHOG in the equation, but gives another 7K to work with.

we still haven't worked which lender to go it. sort of tossing it up between nab, westpac and bankwest. My wife works for westpac, but guess what ? going through a mortgage broker gets her a better rate from westapc than going directly to westpac and getting employee discount ! haven't still figured that one out.

we were thinking of a 25 year PI loan with offsett & redraw, which would mean monthly payments of 2500 ( assuming 6.5% & 370 K loan just for sake of example ) and we can make additional payments of another 1500 per month and still save about 1K per month and allowing us to to payoff the loan in about 11 years time. Reason for 25 year loan, is that it allows flexibility in terms of monthly payments where by we are not over exerting ourselves.

I have looked up possible scenarios with 8.5% & 10.5% interest rates and possibility of just 1 income and this seems to be the best term where we should be able to manage.

I was wondering what options a IO loan would give us in terms of investments (shares , index funds)? We do want to own our ppor outright quickly, hence the move away from IO loan and plan to own in 11 years.

also was wondering about any general advise as this my first property

 

A broad subject covering a range of topics.

If the intention is that it will be a PPOR to live in forever and no intention of converting to an IP, then take a 25 year loan, P&I, with redraw. As the deposit of $70k presuming needs to cover costs (stamp duty, conveyancing etc) as well, you will need to factor in LMI costs. These vary widely between lenders so make sure you are comparing apples with apples in your long term cost projections. It is not just about interest rate. If you stay under 85% LVR, consider ING REF set at a fixed $699 (from memory). Get your broker to do that cost comparison between lenders.

If you think you may one day convert this to an IP, then take a 30 year loan, 5 years IO, full 100% offset.

The option that an IO loan gives is not having to pay the additional principal each month, 'saving' you around $300 a month in having to make that payment. For an IP, it preserves the capital component on which interest and tax deductibility in calculated on.

The solution depends on your long term goals, work that out and the rest flows.
Good luck
Greg