Interest Only Loan Eligible for First Home if Staying There? Suggestions to Convert into Investment after 3years

• 

  MrHyde on 08/10/2021 - 07:57

  +3

  Yeah, I dont think any lender will provide interest only for a owner occupied home loan. You can still get interest only for investment loans, but have to pay a premium in terms of rates to get that.

  Just sounds way too risky to get interest only when it's not an investment property, hence the requirement for greater deposit

  Yes, you can take equity out of property to purchase second property. In most cases, equity only upto 80% of property value would be accepted. So if the property hasn't increased by much and you are only repaying minimum from 10% base, you may not have any equity to withdraw.

  Also be mindful for changing lending rules - looks like banks are going to tighten their belts again till APRA looks the other way.

  • 

    thetrain on 08/10/2021 - 09:52

    +2

    Plenty of lenders will do interest only. Talk to a broker as a starting point

    Ubank is currently 2.09% IO fixed for 3 years (owner occupied), or 2.29% below 20% deposit

• 

  enzioFirenze on 08/10/2021 - 09:23

  +3

  honestly, if you can save a bit more, I would recommend getting a free standing house even if it's not in your ideal suburb. If you don't want to live in it, rent it out and you can live in a rental.

• 

  friedsnowdays on 08/10/2021 - 09:31

  +1

  To start on a more positive note you should be able to pay LMI if you only have a 10% deposit and get a principal and interest loan.

  Now moving on…

  I don't quite understand the reason for you to get an interest-only loan. Is it because you can't afford to make repayments on a principal and interest? If that's the case re-evaluate your plan about what you can afford to buy. If that's not the case it doesn't really make sense to use IO if you only own a single property unless you were planning on investing all your excess cash into shares or another investment.

  Not to burst your bubble but I think the idea of buying a cheap apartment, then taking the equity out in a few years and buying a more expensive property while retaining the apartment is a poor idea unless you are earning big $. I doubt you'd be able to show the cashflow required to support both properties, again unless you are earning a lot of money and in that case don't bother with the apartment and go straight for the home. A better option would be to sell the apartment entirely and buy a larger property when the time comes.

  Also suggest you mitigate your risk and buy an apartment you'd actually want to live in if your plan of upsizing doesn't work out. The reason being that houses typically outperform apartments in terms of increasing in value. Additionally more expensive properties tend to increase in value faster than less expensive ones, the wealthy are getting a lot richer than the rest of the population unfortunately.

• 

  AutomationGuy on 08/10/2021 - 10:58

  If you are by yourself cash flow will be an issue for additional mortgages as mentioned. I'm 12 months down the line from you. ~$500k house, have done renovations and have obviously benefited from an insane market this year.

  Looking at investments properties and a single ~$100k income caps me out around $300-350k on the investment loan which isn't enough for anything I deem worthwhile.

  I don't see how you could suddenly afford your $500k unit and a $1.2mil PPOR without two substantial incomes.

• 

  brendanm on 08/10/2021 - 11:05

  +1

  So you can't afford the repayments on a $500k apartment that you will sublet, but want to get a 1.2m house after 3 years?

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  Drakesy on 08/10/2021 - 12:41

  +3

  Now would be a good time to pay down equity on your loan while the interest rates are low.
  Inflation is coming, yes not as dramatic as first thought but the interest rate hikes will be inevitable.

• 

  tallkid123 on 08/10/2021 - 13:29

  Ques-2:
  (Related to investment strategy)

  Being kinda pessimistic, after 3years if this unit price stays the same, to move into a $1.2mil home can I show equity from this home, or do I need to save up the full deposit? If someone could please explain that’d be so helpful!

  You can use equity as a deposit. But first, you'd need to approach the bank or a mortgage broker to refinance through a property assessment and release of equity (if any) before it's usable. In this case, you wouldn't need to save up full deposit for another property.

  However, that $1.2m home today is very likely going to rise in value within the next 3 years. You haven't disclosed your profile (Single? DINK? High/low earner? FTE/Casual? Run a business? Are you receiving a gift?). If you want multiple investment properties, you'll need high borrowing capacity and that is determined by your profile.

  Ques-3:
  Wanting to get some investment strategy advisor as beginner I don’t understand the process well of buying multiple homes. Anyone knows who could explain in one session? Not yet keen to spends large bucks on it

  Do your own research. You can start by going to Propertychat and reading up on investor profiles and other posts.

• 

  morse on 08/10/2021 - 14:05

  If you do interest only either also have a offset account or have whatever money you’re saving earning more than you’re paying in interest. I’m not sure that you’ll get a 2bdr unit for $500k in some of the suburbs you’ve listed. If you can get something near to a train station that’s likely to be easier to rent in the future.

• 

  May4th on 08/10/2021 - 14:45

  IO on owner occupied property will have tighter lending criteria and significantly more expensive.

  if you can't make repayments on P+I you shouldn't be buying at this point in time when rate will likely climb in next 2-3years.

  if it's not a serviceability issue you can always refinance when making a second purchase (can top up loan to release equity when you borrow to purchase second OO -if you say it's for an investment property you can top up your loan to make the most of maximising deductible debt on your existing property that you rent out later) - if you plan to sell it won't matter either way

• 

  tomclancy on 08/10/2021 - 21:10

  Your mortgage broker is right —> interest only loan with only 10% deposit is not available under any bank policy at the moment. You're going to have to give up the idea of interest only or save more of a deposit.

  I can understand your reasoning for wanting interest only - a way to save funds quicker for potential future use. Bear in mind that at any time you can refinance, there are no timeframes like "1 year" etc. So if at any point in the future the value of the property goes up so that LVR <=80% (i.e. your $500k unit goes up in value to $563k+) then at that point you can speak to your bank / refinance to another bank and receive the interest only loan you seek. However, waiting for the Sydney market to move upwards 12.5% might take years in the current environment. RP Data estimates 7-9% growth in Sydney in 2022 and then potentially down in 2023.

  Personally I think the best way you can save is by avoiding LMI. A lender like Bluestone will do 10% deposit without LMI. That's like $11k saved upfront.

  Q1 answer: lender's only requirement for interest-only eligibility is for the loan amount to be less than 80% of the value of the property. This is substantiated with a formal property valuation (bank can organise at no cost)

  Q2 answer: if after 3years you wish to buy a second property, then you would refinance both loans (existing & new) and the lender would value the unit and the new property at that time. The 'equity' that you have in the unit [difference between the unit value and the existing loan] will be able to be used towards the deposit for the new property purchase. Therefore, if the unit value doesn't increase in those 3 years then yes you will need to save the full deposit of the new purchase

  Q3 answer: best if you chat to your mortgage broker on that one. Pick their brain. They shouldn't charge you for that advice - it's just a chat. They are legally obliged to ensure they aren't putting you into financial stress and they know your personal circumstances already so they'll know if you are capable of financially sustaining that strategy.

  [source: I'm a mortgage broker]

  • 

    TEER3X on 08/10/2021 - 21:13

    -1

    So we really need $200k for a $1m house yeah?

    • 

      tomclancy on 08/10/2021 - 21:15

      Nah, heaps of lenders do 95% LVR. Only need $50k + stamp duty if payable + LMI + conveyancing costs. Those lenders will restrict to certain types of borrowers —> less risky ones

• 

  Quantumcat on 08/10/2021 - 23:58

  +1

  Units don't increase in price very much so there won't be much equity at all when you decide to buy the free-standing house. And meanwhile the same house has gotten much more expensive than it is now, so you're even further away from buying it than you are now. Better to just buy the house now and not worry about the unit.

  • 

    Nina009 on 09/10/2021 - 18:15

    Do you suggest to wait till I save the deposit of 130k (assuming price will go up 1.3mill) ? How about townhouse as that’s more affordable.

    • 

      Quantumcat on 09/10/2021 - 21:04

      A townhouse would be better than an apartment. Or what about buying a house in an outer suburb, renting it out and renting something small where you want to live? Then the equity will be growing while you are saving more for your dream house.

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  Nina009 on 15/10/2021 - 17:37

  Hello thank you guys, actually I’ve just found a townhouse at Merrylands which is not at the frontside of the complex. Just at the backside and 2 storeys but has got no views basically because they are surrounded by other townhouses. 15 mins from train. If i offer 510k is that fine? They said they already got 530k not sure if that’s true. I don’t have much idea about merrylands but the location is good and stovklands merrylands and parks around.