Browse Forums Real Estate 1 Sep 18, 2010 5:26 pm We're just trying to work out how best to go about trying to get this property we love... If it doesn't go beyond our budget, we'd have to get a home loan due to the fact we haven't sold our own place yet, but we'd be paying all or almost all of it off as soon as we sell... And we'd also still be paying off the existing home loan for our own place...so to avoid this (hopefully brief) time of paying off 2 home loans at once, as well as paying for 2 lots of body corporate and council rates, we're looking at interest only loans...to just cut down those repayments till we sell. Anyone with any experience in this? (again, I stress that it wouldn't be a long term thing. When we sell, it gets paid off, and the small amount remaining - to avoid the early termination fee and also cause we'd be borrowing a bit more than the purchase price of the property to help us pay for the legals and stamp duty and renovations and stuff - would then be paid off as a normal loan, paying off both the interest and the principle. How the hell did I become a senior member!? I know nothing! Re: Anyone have / had an interest only loan? 2Sep 18, 2010 6:39 pm Sounds similar to what we did, Grace. We had an interest-only loan during construction. Actually we only had the one loan before, during and after our build but it kept morphing to suit our requirements. This was all done as a means of not having two separate loans going, or the need for costly bridging finance. Our bank was a great help. Really! We had a normal principle-and-interest loan at our old place and didn't quite pay it off before we built. When we bought the block of land we extended the existing loan because of the equity we had built up and it remained principle-and-interest. When construction started it was extended once again and became interest-only; the amount of it was a bit more than the total cost of construction, the block, the remainder of the original loan and legals etc but it wasn't like a normal loan where the total amount was put in your account, rather we only drew down on it to make progress payments to the builder. When we sold our old place (during construction) the money from that went back into paying off the principle amount of what was owing on the old place, and the price of the block. This might sound a bit confusing here because like I said at the top we've had the one loan all the way through but we paid off the original principle amount of the loan. The leftover money from selling the old place went into the Netsaver account and the monthly interest we earned on it was sometimes enough to cover the monthly payments on the interest-only loan, depending on how much we had drawn down! The money in this account was used to pay for big-ticket items for the house, and also made the last payment to the builder. When construction finished and the builder was fully paid, the loan reverted to principal-and-interest and the balance of it was the difference between the total loan amount and what hadn't been paid back. We never drew down the total amount of the loan. Hope that makes sense! It is wise to borrow more than you need, for the reasons you suggest. Geoff - Decophile. Re: Anyone have / had an interest only loan? 3Sep 18, 2010 8:42 pm Yeah, I think that all makes sense!! lol Sounds good to me anyway. Is it really wise and ok for us to borrow more than we need strictly for just the property price? We want to avoid having to dip into our savings at all before we can sell our own place. The total loan would consist of... - Property purchase price (minus 5% deposit I'd have paid up front myself) - Reimbursement of that 5% deposit amount so I have my savings back - Renovations at the new property - Legal fees for both selling and buying - Stamp duty - Establishment fees etc (will be lumped into the overall loan) - Removalist costs for moving into our new place (incl. storage of some items to de-clutter in the 5 weeks before we move out, while we're actively trying hard to sell) - $5,000 to pay off my credit card (approx. 6% interest is way better than the 13% I'm paying now) We just basically don't want to pay anything before we sell. I'm just nervous about... (1) If we'd be forced to get mortgage insurance cause we'd be borrowing more than the cost of the property (more than 80% of the purchase price I think is when they require you to take out the insurance). We reeeeeally don't want this!!! (2) Our broker said something about having to have a mortgage on both our new place and our existing place in order to borrow more than the purchase price of the new property...I'm not sure what this means, but we're waiting on her clarification on this. We have a "home loan" for our existing place through my mum, but it's not through a bank. I don't want anything to affect that or my mum, etc. How the hell did I become a senior member!? I know nothing! Re: Anyone have / had an interest only loan? 4Sep 18, 2010 9:03 pm We have interest only on our house under construction. The mortgage on the house we are currently living in we were able to convert to interest only because it will return to an investment property once the house is finished. It was easy for us to do as it was previously an investment propety so we are essentially renting it. The bank didn't allow us to have an offset account on both mortgages though. We had the option to combine to just one mortgage but the accountant advised against it because we are reverting our existing house to an investment propety Re: Anyone have / had an interest only loan? 5Sep 18, 2010 9:39 pm Yeah, in my case I'm not sure what the bank would do seeing as we can't just lump both loans together as my mum is obviously not a bank! lol How the hell did I become a senior member!? I know nothing! Re: Anyone have / had an interest only loan? 6Sep 18, 2010 10:59 pm We did this too when we built, they called it a "relocation loan". It was hard servicing them both, but thankfully only for the short term and so worth it in the end. If you can afford it then go for it Blog: http://bluemistkids.blogspot.com "Never be afraid to try something new. Remember, amateurs built the ark, and professionals built the Titanic." Re: Anyone have / had an interest only loan? 7Sep 19, 2010 12:52 pm Grace, obviously I dont know how well off your mum is - but if you buy a second property, would she be willing/able to let you suspend payments on the loan to her until the first property is sold and then you pay her back in a lump sum from the selling proceeds? Just a thought Re: Anyone have / had an interest only loan? 8Sep 19, 2010 1:26 pm I'm not sure what your issue is with interest-only loans. But I have had quite a few - and still do, actually. Is there something you're worried about in particular? One thing you will find is that the bank will only give you 5 years on the interest free period. This is no biggie, as you can just roll over onto another 5 year period at the end. Sounds like you only intend to have it IO for a short period for whatever reason so that will probably not be a concern for you. Yes, you will have to pay mortgage insurance over 80% of the purchase price and the % goes up depending how much you intend to borrow. For instance, it may be 1.5% of the purchase price for an 85% lend and 3.5% for a 95% lend. Not many banks will lend any more than that so you will not be able to get a 110% or whatever loan for the new property. What you will have to do is set up a new mortgage against your existing property. This is usually a line of credit. A bank will lend you up to 80% of the value of your place - if it is in your name, as I assume. You take this $ and use it for the deposit, stamp duty etc on the new house. Then you set up a separate mortgage for 80%. This gets rid of the mortgage insurance issue. Re: Anyone have / had an interest only loan? 9Sep 19, 2010 4:40 pm Ok... I actually have no issue with interest only loans. I'm incredibly RELIEVED that they exist at all!! My issue is with being able to pay back 2 loans of any kind (my mum's one and the new one)...I'd have to ask my mum about suspending the payments and then paying them back as a lump sum. I currently pay no interest on my part of the loan to her. My partner pays interest but 0.5 less than what the banks charge on mortgages. I don't want to disadvantage her in any way just cause WE want to buy this property, you know? I'm nervous and confused about this thing about taking out a mortgage on our existing property...can you clarify a bit? (I'm sure our broker will do this, and I have asked her, but obviously it's the weekend. I'm impatient, waiting for her response!!! lol) 1. CAN we take out a mortgage on our current property if we already have one through my mum? It's a registered loan...we paid stamp duty on the loan and so I assume it's classed as a "real" mortgage, right? We've got all the paperwork and such... 2. So if we take out another mortgage on our current property, it'd JUST be for the "extras" I mentioned above? All those extras totalling about $35,000 AND the excess of the purchase price, so that for the MAIN loan (just relating to the NEW property), we'd only be borrowing 80% of the purchase price...is that right? So we'd therefore avoid mortgage insurance. So in that case...the mortgage on our current property would be about $110,000...and the mortgage on our new property would be about $280,000? Is that correct? (based on the extras totalling $35,000 and the new property being $350,000) So in the 1-6 month period while we try and sell our current property, we'd be paying back my mum's loan (my repayment is $180 a week), the mortgage on our current property (could THIS be interest only too?) AND the mortgage on our new property? I assume it wouldn't be any extra to have 1 loan and 2 smaller loans going than having 2 larger loans, eh? And THEN...when we sell our current property, we totally pay back that $110,000 mortgage on the current property...but then we'd be hit with the $700-$900 early termination fee, won't we? That sucks!!!! Is there any way to avoid this by say, leaving $1,000 on that loan and then moving it over to the mortgage on our NEW property? So that old mortgage is gone but no early pay out fee? Then we've still got the mortgage on the new place of around $280,000...so we'd pay $240,000 of that off...cause that's all we'd have left out of the sale price of $350,000 for our current property once we sell IF we can even get that sale price. We SHOULD be able to, but people are incredibly...careful, shall we say, with money right now and nobody is paying anything. So then we'd have my mum's loan as it's always been...and we'd just continue to pay that off as if nothing had changed, and then we'd switch the other loan on the new property to interest AND principle and pay off the remaining $40,000 or so gradually over time...and at say, 6.5% interest on that, that's $25 a week each repayments...that's not a problem. So IF it all works out that way, we'd be ok... But is my thinking correct, or am I missing something? lol How the hell did I become a senior member!? I know nothing! Re: Anyone have / had an interest only loan? 10Sep 22, 2010 12:19 pm grace_slick 1. CAN we take out a mortgage on our current property if we already have one through my mum? It's a registered loan...we paid stamp duty on the loan and so I assume it's classed as a "real" mortgage, right? We've got all the paperwork and such... Yes. You can get a second mortgage over the property. Of course, it all depends on whether the bank thinks that you can service the loans. 2. So if we take out another mortgage on our current property, it'd JUST be for the "extras" I mentioned above? All those extras totalling about $35,000 AND the excess of the purchase price, so that for the MAIN loan (just relating to the NEW property), we'd only be borrowing 80% of the purchase price...is that right? So we'd therefore avoid mortgage insurance. Yep So in the 1-6 month period while we try and sell our current property, we'd be paying back my mum's loan (my repayment is $180 a week), the mortgage on our current property (could THIS be interest only too?) Yes. You can get an IO line of credit. AND the mortgage on our new property? I assume it wouldn't be any extra to have 1 loan and 2 smaller loans going than having 2 larger loans, eh? It may be extra. And THEN...when we sell our current property, we totally pay back that $110,000 mortgage on the current property...but then we'd be hit with the $700-$900 early termination fee, won't we? That sucks!!!! Is there any way to avoid this by say, leaving $1,000 on that loan and then moving it over to the mortgage on our NEW property? So that old mortgage is gone but no early pay out fee? Ask your broker about getting a portable loan against the current property. This is commonly available. if not, make sure this loan won't sting you with termination fees or leave $1000 or whatever the minimum is & pay it off later. Hopefully your broker has been able to clarify all this. Just make sure you are conservative with the sale price of your current home & make sure you will have no issues with serviceability based on the worst case scenario. Re: Anyone have / had an interest only loan? 11Sep 22, 2010 2:25 pm The main thing that no-one has mentioned is that the property that you have mortgaged to your mother - lending institutions may not touch. This is because they have to accept being the "second mortgage" after your mother. No lender likes this in actuality - because it means should something untoward happen they will only get paid after your mother. Most lenders want to be No.1 and be paid out first. Some things are worth waiting for. Re: Anyone have / had an interest only loan? 12Sep 24, 2010 11:12 am Do you think this sort of thing wouldn’t come up in the pre-approval process, but WOULD come up later when we have already felt safe to bid & buy, and then we’d be totally screwed at the end? How the hell did I become a senior member!? I know nothing! Re: Anyone have / had an interest only loan? 13Sep 24, 2010 12:38 pm In a word - YEP! Any major lender will want to take over the debt from your Mum - which incurs interest / fees / charges. If you can find a lender who is happy to be a second mortgage then kudos to you. In 5 years of being a lending manager the only time I ever saw it happen was with Defence Service home loans (ie loans to service personnel) and that was because it was written in stone pretty much that any lender had to be second to the DSH loan. Some things are worth waiting for. Re: Anyone have / had an interest only loan? 14Sep 24, 2010 1:26 pm Hmm. Well, we're totally screwed then. Is our broker irresponsible to be trying to do this for us? If we bid at auction, assuming (90% it seems wrongfully) that we're safe to buy the property (depending of course on the price), and then as it gets closer to settlement, we're told the bank is denying us the loan...well...SCREWED. 100%. In any case, it seems as if we can't bid anyway cause our broker has advised that she can't guarantee the bank will be ready in time for Sunday. *sigh* Great. Another 2-5 years of looking for a place even half as suitable for us. *depressed* How the hell did I become a senior member!? I know nothing! The biggest challenge will be if you take out a loan and then run out of money - you'll have an incomplete security and lenders do not like this so you can get stuck.… 2 13521 That is a really good attitude Akin to you catch more flies with honey than vinegar. I do enjoy watching that tik tok inspector from Victoria but he does go a little… 12 72487 Hi, you've probably already resolved this, however, Commbank will probably pay the funds to you after you send evidence the work is done regardless the change in the quotes. 1 31778 |