First home buyer home loan

CI on 02/04/2016 - 10:26
Last edited 05/04/2016 - 09:12 by 1 other user

Hi guys, I wanted your opinion on this

Let's say You are to buy a house which is $400k

Is it better to
Pay the Minimum deposit 5% (parents as guarantors so no mortgage insurance)
And put all your savings in a 100% offset account

Or if You have $150k+5% in savings, to get a loan of $250k and pay 5% deposit (parents as your guarantors no mortgage insurance) so you pay $150k upfront for your house

Update 1:
On top of all this you have $40k buffer for furniture and misc

Update 2:
Comments seems to be suggesting opposite to leading poll

Update 3: 05.04.16
From what I have gathered so far: If I do only 5% deposit regardless of what is in my offset - the rate offered is probably going to be higher than the rate for a 20% deposited loan. Then why is the poll suggesting to go with full $400k Loan?

Poll Options

  • 18
    Take out full $400k loan $150k in offset (plus 5% for deposit)
  • 3
    Take out minimum loan as possible, $0 in offset on day 1 (plus 5% deposit)
  • 10
    Take out $320k, 20% deposit ($80k), $0 in offset on day 1
Financial

Comments

  • Nugs on 02/04/2016 - 10:31
    +6

    borrow what you NEED, not what you WANT.

    temptation to spend your 'offset' may cause you to be one of those ACA stories how "the bank lent me the money, they are bad…."

    • CI on 02/04/2016 - 11:39
      +5

      I won't fall for no temptation. Been saving like a little scavenger, trust me.

    • Deridas on 03/04/2016 - 11:46

      You'd find that most ozbargainers are the type that have incredibly strong wills NOT being tempted to spend the offset. If we're the type that might, we wouldn't be hanging around ozbargain ;)

      • Nugs on 03/04/2016 - 11:55
        +2

        not even on eneloops?

  • mskeggs on 02/04/2016 - 10:41
    +3

    Consider the bank will charge mortgage insurance if you have under 20% deposit. This protects them in case you default. The premium is higher the lower your deposit. There are calculators on the web.

    • loulou1 on 02/04/2016 - 15:50
      +1

      If parents are offering up their property as security, as long as the loan is less than 80% of the total value of security being offered, no Lender's Mortgage Insurance (LMI) is payable.
      For example, if parents are offering their $500K property as security, and new property is $400K, then up to $720K can be borrowed with no LMI (this obviously has to include any existing mortgage the parents may have).
      I worked for one of the big 4 in the home loans area for nearly ten years :)

  • LSGH on 02/04/2016 - 11:36
    +1

    when shopping for you loan, try looking at the mutual banks as well and not just the big 4

  • spychiatrist on 02/04/2016 - 11:56

    5% with no mortgage insurance? Serious?

    • tomleonhart on 02/04/2016 - 17:12

      Guarantor

      • spychiatrist on 02/04/2016 - 18:19

        And only relatives can be guarantors?

        • tomleonhart on 02/04/2016 - 18:57
          +2

          Generally only spouse and immediate relative can be guarantor.

          would you trust someone else ability to pay their loan knowing your house can be repossess if the person can't meet repayment :-)

  • donga100 on 02/04/2016 - 15:38
    +2

    I voted to take out the minimum loan as it gives you more flexibility with your cash should you need it in the future for things such as emergencies or diversifying your investments. I've often found though that there are better deals on mortgages for those borrowing less than 80% or 90% of the property value.

  • StewBalls on 02/04/2016 - 17:13
    +9

    Take out $320k, 20% deposit ($80k), $0 in offset on day 1

    This one. Be a man, stand on your own two feet & don't let your parents risk their home on your investment.

    • chumlee on 02/04/2016 - 18:36
      +1

      Yes, well said.

  • tomleonhart on 02/04/2016 - 19:12
    +6

    Personally I hate getting my parents involved in my personally life. So any option that leaves them out = a plus from me.

    • CI on 02/04/2016 - 19:50
      +1

      This is not an issue for me. My question is more so in terms of which option will be the most financially beneficial.
      I intend to take care of my parents I.e make them move in with me

      • tomleonhart on 03/04/2016 - 05:47

        all options would net the same result. IF anything you are paying extra for having a guarantor on your loan.

      • StewBalls on 04/04/2016 - 20:19
        +1

        I.e make them move in with me

        Against their will if necessary???

        • CI on 04/04/2016 - 20:45

          Not that intense bro

        • StewBalls on 05/04/2016 - 11:32

          @CozmerkIsenberg: Stick them in a little Harry Potter hidey-hole under the stairs, they'll be fine… ;)

  • MustacheFire on 02/04/2016 - 20:06
    +1

    I would go with the 20% deposit. Even with no LMi there may be a difference in the interest rate you can get. Even with a slightly larger loan you will presumably offset anyway - but this way you can leave the parents out of it.

    If you intend to make this an investment property later, then you should use offset - when you pull out the cash later the loan interest will be tax deductible (not the case if you paid it down)

  • Chris Topher on 02/04/2016 - 20:18
    -3

    http://www.chsloans.com.au/ <—New South Wales
    CHS Home Loans
    Co-operative Housing Societies (CHS’s) are state based, mutual, lending institutions that have a long and distinguished history of assisting families and individuals to purchase their own home. The first Co-operative Housing Societies were established in NSW over 70 years ago and were then known as terminating building societies.
    In all that time our goal of assisting you to purchase your own home has not changed.
    These days Housing Societies, through their marketing entity CHS Home Loans, work closely with Government to manage existing portfolios of loans as well as to provide a loan broking service to their client members requiring more mainstream lending products.
    Co-operative Housing Societies exist to provide a service to their member shareholders, so if you are looking for home finance then Co-operative Housing Societies are the ‘experts’ you should consult.

    http://www.parliament.vic.gov.au/papers/govpub/VPARL1985-87N… <— Victoria
    http://abnreport.com.au/abnlookup/96026904082-ringwood-no-1-…

    You now have all you need to know.

    • Chris Topher on 03/04/2016 - 19:04

      Why the negative votes? CHS was one of the elite establishments to get a low interest 1st home (only) loan.

  • The tiger on 03/04/2016 - 08:45
    +3

    Since you said you are a good saver, I suggest you pay a lower amount of deposit. This way you would have more chance for further investments such as into participating share equity or other cement mortar investments. All these will be fruitful in form of passive incomes to you at later of your years; and likely for you to get out of rat race faster . I have a lot of experience myself and was fully involved in propertv investments in my past working life. For my reward I am able to retire very early . I admire your love of your parents esp. you intend to move them in to stay with you. You will get rewards for your being a good son , I am sure.

    • Deridas on 03/04/2016 - 11:49
      +2

      I agree, all apart from rewards for allowing parents to move in… It's significantly more of a hassle when you bring girls home when the Pop is on the lounge in his boxers watching Asian TV. XD

  • scopebindi69 on 03/04/2016 - 10:12

    A few other considerations that I see dependant on your situation are:
    What sort of property you are looking to buy if you are wanting to get first home buyers as well you won't be able to use a guarantor.

    Another, is the repayments if you only pay your 5% deposit your borrowing $380K and will make repayments on that, the offset reduces your interest but the higher repayments will reduce your saving capability this depends on your income.

    Given you have the money I wouldn't worry about the guarantor I would pay the 20% deposit at least, I can understand why you would do this to keep more $$ in the bank. By paying the 20% upfront will look better on your credit rating if you are looking to loan more money at a later date.

  • CheapskateQueen on 03/04/2016 - 19:52
    +1

    5% is really really low, so I'd go with at least 10%.

    The other consideration other than LMI,is the interest rate you'll get. I've noticed that some lenders have better rates if you have 20% vs 10% vs 5%.so make sure you factor that into your decision. I definitely would not pick a higher rate voluntarily.

  • martinj on 04/04/2016 - 08:32
    +1

    Look into what loans are available with guarantors. Some of the low rate online lenders don't do guarantors and some places only offer it on higher interest loans. Also, sometimes the low rate loans don't include a mortgage offset account.

  • cainen on 04/04/2016 - 17:07

    Are you considering renting the property out at some point in the future? If so you will want to borrow the max you can, use an offset account and make the loan interest only.

    • CI on 04/04/2016 - 17:28

      why interest only ? then any mortgage payments i make will just be money down the drain as nothing is going to principal? yes i do want to rent it out.
      I want to buy to get first home buyers grant and then rent out as soon as i can i.e go from PPOR to Investment Prop. is that reasonable ?

      • donga100 on 04/04/2016 - 17:47

        Speak to your accountant first. The gains from the first home owners grant could be wiped out by the missed gains in depreciation, etc.

        • CI on 05/04/2016 - 09:13

          thats my first problem I dont have an accountant - I am trying to workout if i should get an accountant from the big4 or a financial management consultant

      • cainen on 05/04/2016 - 08:12
        +1

        As long as you put at least the amount of what the principal repayment would be into the offset you will be no worse off.

        I'm assuming you will want to buy another property when you rent this one out. If so you will need access to funds. If they're in offset it's simple. If you've been paying down the mortgage you may need to draw down the loan which will screw up your tax deductibility on the interest on the loan as you can only claim interest on the loan amount before you drew it down.

        If you've been putting your money into offset you don't need to change the loan and the full interest amount will become deductible.

        An accountant could explain this better than I can and it pretty much depends on your individual circumstances. It's definitely a good idea to speak to one because it's never as simple as you think it is.

  • YourMortgageBroker on 15/04/2016 - 19:24

    Which option to choose depends on what your plans are for the near future.

    Also, while it is true that most major lenders' interest rate discount are tiered ie. based on deposit level, there are some fantastic lenders out there who offer the same discounted rate across the board.

    • CI on 15/04/2016 - 19:48

      Future plans - to have multiple investment properties then can start generating passive income through rental yield.

      • YourMortgageBroker on 16/04/2016 - 12:03

        If you want liquidity then keep the extra money in the offset account or have available as redraw. If you pay Principal and interest then this will be calculated based on your total loan amount. Interest offset will be deducted from our loan balance each month. So, if you are comfortable making P&I repayments on the higher loan amount go for it. Otherwise, you can just borrow $250K now and when you are ready to purchase your next property you can apply for an increase or even refinance at that time.

  • samprofs on 18/04/2016 - 16:35

    Most lenders will offer you 80% rate even at 105% lending, as long as your guarantee amount makes up the difference to 80%LVR.

    You only really need a SECURITY ONLY guarantee. There is 2 lenders that do not care about your parents income at all and there is only one statement for them to sign.

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