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.
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.