Mortgage help wanted

My partner and I bought our house 18mths ago with the intention to live in it for a short time while we save a deposit for a family home. We were then going to use this house as a rental. We've now got a slight delay in our savings plan (baby and only one income now) and are reassessing our mortgage.

The house next door (almost identical) sold recently so we got our place valued by the bank and it came in higher than I expected. Currently our mortgage rate is 5.05% and we owe over 80%. We're currently paying interest only. Our broker has found a deal for 4.35% if we can bring the loan amount to less than 80%. We have money in the offset account to do this.

We're still saving for the family home and constantly looking at real estate. I'm wonder whether we would be best to owe 95% of the valuation on our current house and put the capital and our savings into the deposit for the family home. Or would I be best to change the mortgage now and consider changing again when we find the right place for us?

A bit new to the housing game here so would love some thoughts.

Comments

  • +2

    You may need to do the math yourself (as you haven't outlined the extent in dollar terms of the mortgage). Using my own life experience, I paid a slightly higher interest rate for a mortgage which permitted an offset account and kept as much cash/equity as I could OUT of the mortgage (ie in the 100% offset account) so that at a later date I could immediately pull this money and use it as a deposit on the next property, thus allowing the highest possible loan against #1 property, thus allowing me the maximum taxation deduction on the interest of what would then be a rental property. (Same situation as you we bought an apartment with a view that it would be short term and we would lease it out when we got married and required a house for kids etc). Not that I'm complaining (as the best possible thing happened) the initial property doubled in value, interest rates fell and the "master plan" of negative gearing fell apart as it was cash flow positive. Anyway - Despite your current temporary hurdle if I were in your situation I would stick to your original plan and mortgage. As many have pointed out on this forum before, there are possibly more appropriate forums to be asking such questions where the potential respondents are possibly better informed to be able to assist you. (I am sure the next post on this thread will be about a market crash and impending doom, with all properties without a bomb shelter suitable for bugging out being dramatically over priced).

    EDIT: Speaking from experience I gained from a property guru when I was in my teens, paying P&I vs interest only is not technically the right thing to do for properties used for investment or bought with a future investment in mind: HOWEVER: P&I provides a nice little buffer and helps protect against market corrections over time. It also helps with your equity numbers when the bank is assessing you for future loans. The final plus is in 25-30 years you'll wake up and realise that particular mortgage has evaporated. Again in my own life I have followed this guru who was also my former boss (RIP George Kennedy - Lifetime servant of the real estate industry who retired with about 40 personal investment properties and sold his Agency rent roll for a substantive sum on his retirement)Anyway based on the principals learned back when I was 18 or so things have turned out ok for me.

  • New to the Market as well so I got no advice for you.

    Just wanted to ask though, if you owe more then 80% on the mortgage, how much did you put as a deposit and are you paying the LMI?

  • I think you should wait until you find the house you want and pay LMI on that. There is no benefit in maximising your current loan and pay the LMI now and if your current house reduces in value, you won't have room to move.

    If you are thinking of building or your dream house is still 12 months away, start paying principal on current house. The equity you put in there (considering you can bring it down to 75%) can be used to purchase your dream house.

    Change your mortgage lender, but calculate the cost to move first. 0.7% difference sometimes not worth the move.

  • +1

    Like what the previous posters said, hold off on the future plans at the moment and just concentrate on your current situation (one earner and have a mortgage). You should really pay principal and interest for your current home and just change it to interest only when you turn it into an investment. Put most of your money into your offset account to minimise the interest you're paying.

    Congratulations by the way and all the best.

  • +1

    Thanks all for the advice. We have already paid the LMI on the current mortgage so if we increased the loan amount to access equity for the next purchase, I doubt we'd have to pay it again.

    I never really thought about paying P+I as we have everything in the offset account. Absolutely everything - I transfer money from the offset when I'm at the checkout! (much to the annoyance of the people behind me…) My understanding is that having the money in the offset as opposed to paying P+I gives us the flexibility to use it if we need to and the benefit of paying less interest.

    To give some figures, we bought our house for 315,000 and our mortgage is currently at 295,000. We have 30,000 in the offset account and hope to bring that to at least 50,000 by the end of the year. Our house has recently been valued at 360,000 by the bank. So in order to bring us to under 80%, we would transfer at least 7,000 into the loan. Or, if we bought the loan up to 95% owing, we would have 47,000 in equity plus 30,000 in the offset (77,000 for deposit for the family home, hopefully 97,000 by the end of the year). Our intention would then be to have the rent cover the mortgage for the 95% loan (our current house) and keep as much money as possible in the family home mortgage offset, at less than 80% owing.

    Oh, and neither house will have a bomb shelter.

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