Buying a House

[raskolnikov]

I am at the stage where I am considering buying a house. I have about $100,000 to invest. How much of it should I put into the house?

 

[juzza316]

I am at the stage where I am considering buying a house. I have about $100,000 to invest. How much of it should I put into the house?

How much is the house you are looking at buying? If you can't get a decent answer on here, have a look at http://www.propertyinvesting.com/forum/forum/24.html

 

[bunsen burner]

Most likely $95k

 

[year of the roo]

Most likely $95k

Yep, as much as possible. Just keep a small amount for emergencies.

 

[raskolnikov]

Cheers for the replies. I am probably looking at buying a house for between $200-300k.

 

[bunsen burner]

Cheers for the replies. I am probably looking at buying a house for between $200-300k.

Included in your total price must be stamp duty, other buying costs, repairs, changes etc.

Try to get a revolving line of credit. Example:

- You get approval for $200k loan (RLOC).
- House cost $270k inc stamp
- You put $70k down of your 100k, 30k left over
- You put the 30k remainder on the loan so the balance is now $170k
- You have a 30k buffer for any repairs, costs, repayments etc

If you don't get ROLC:

- You get approval for $200k loan
- House cost $270k inc stamp
- You put $70k down of your 100k, 30k left over
- You pay for any changes to the house or repairs etc out of the $30k. Let's say this is 10k. 20k remaining
- You put 10-15k remainder on the loan so the balance is now $185-190k
- 5-10k you put in an ING account at 5.85% and keep for emergency bills and repairs. You're getting 5.85% but here but paying 7.8%ish interest on it for the loan. You're losing about 2% in interest so you need to find that balance where you have enough backup cash but don't put yourself at risk. That's one reason why a RLOC is better.

 

[Howard Littlejohn]

Cheers for the replies. I am probably looking at buying a house for between $200-300k.

A house for under 300k? Do they still exist (in the mainland capitals at least)?

 

[Lensen]

Included in your total price must be stamp duty, other buying costs, repairs, changes etc.

Try to get a revolving line of credit. Example:

- You get approval for $200k loan (RLOC).
- House cost $270k inc stamp
- You put $70k down of your 100k, 30k left over
- You put the 30k remainder on the loan so the balance is now $170k
- You have a 30k buffer for any repairs, costs, repayments etc

If you don't get ROLC:

- You get approval for $200k loan
- House cost $270k inc stamp
- You put $70k down of your 100k, 30k left over
- You pay for any changes to the house or repairs etc out of the $30k. Let's say this is 10k. 20k remaining
- You put 10-15k remainder on the loan so the balance is now $185-190k
- 5-10k you put in an ING account at 5.85% and keep for emergency bills and repairs. You're getting 5.85% but here but paying 7.8%ish interest on it for the loan. You're losing about 2% in interest so you need to find that balance where you have enough backup cash but don't put yourself at risk. That's one reason why a RLOC is better.

Obviously you mean a loan with an Offset arrangement, as there's like to be a difference of between .4% and .7% on the interest rates between the two.

 

[raskolnikov]

A house for under 300k? Do they still exist (in the mainland capitals at least)?

Just as well that I'm not looking at buying in a mainland capital then.

 

[Philzsay]

You basically need to make a decision on whether you feel confident on making an investment which would earn a higher return than the interest rate you will pay on your housing loan.

Put aside (or extend the loan) any funds if you need to make any immediate repairs/renovations to the home.

I wouldn't worry about leaving any money in a cash account for 'emergencies'. Thats what credit card available credit limits are for.

 

[bunsen burner]

Obviously you mean a loan with an Offset arrangement, as there's like to be a difference of between .4% and .7% on the interest rates between the two.

Not sure what you mean.

If you don't have RLOC then once you pay into your loan you can't draw it back out. So you need to leave your emergency backup money (for repairs, maintence, repayments, insurance etc) in another account. If you use an ING account (there's others) you get 5.85% interest. But the catch is: if you put your emergency money on the loan you don't have to pay 7.8% interest on it. But if you put it in ING you have to pay 7.8% interest whilst only recieving 5.85% from ING. That's why you need to work out the minimal safe amount to keep aside for emergency.

Get a ROLC and you just put all your money on the loan and if any emergencies pop up you just draw it out (providing you're not maxed out).

 

[Lensen]

Not sure what you mean.

If you don't have RLOC then once you pay into your loan you can't draw it back out. So you need to leave your emergency backup money (for repairs, maintence, repayments, insurance etc) in another account. If you use an ING account (there's others) you get 5.85% interest. But the catch is: if you put your emergency money on the loan you don't have to pay 7.8% interest on it. But if you put it in ING you have to pay 7.8% interest whilst only recieving 5.85% from ING. That's why you need to work out the minimal safe amount to keep aside for emergency.

Get a ROLC and you just put all your money on the loan and if any emergencies pop up you just draw it out (providing you're not maxed out).

I'll use the figures from where I work, just to make things simple:

LOC means you're paying 7.92% on the balance. So while the limit may be $200k for example, if you've only drawn to $110k then you're only paying 7.92% on $110k.

However if you have a $200k Offset Home Loan you can get between 7.12%-7.52%. If you then put the $90k into the Offset Account (the linked savings account, not the home loan), you're then only paying the 7.12-7.52% on $110k, saving you between .4-.8%.

 

[bunsen burner]

I'll use the figures from where I work, just to make things simple:

LOC means you're paying 7.92% on the balance. So while the limit may be $200k for example, if you've only drawn to $110k then you're only paying 7.92% on $110k.

However if you have a $200k Offset Home Loan you can get between 7.12%-7.52%. If you then put the $90k into the Offset Account (the linked savings account, not the home loan), you're then only paying the 7.12-7.52% on $110k, saving you between .4-.8%.

The 7.92 was a figure I pulled out of my arse. For demonstration purposes only. I'm not convinced you know how IR work?

 

[Lensen]

The 7.92 was a figure I pulled out of my arse. For demonstration purposes only. I'm not convinced you know how IR work?

Haha no I don't have any idea. Clearly working in home loans for four years has left me unknowledgeable.

I'll try to put it another way for you to understand:

LOC
Limit = $200,000
Balance = $110,000
Amount of Money you have available to draw upon: $90,000
Amount you are paying interest on: $110,000
Interest Rate = 7.92%
Interest Payable per Year: $8712

Home Loan with Offset Arrangement
Home Loan Balance = $200,000
Offset Account Balance = $90,000
Amount of Money you have available to draw upon: $90,000
Amount you are paying interest on: $110,000
Interest Rate = 7.12% - 7.52%
Interest Payable per Year: $7832 - $8272

For someone who professes to be all knowledgable on just about every subject, you don't seem to be getting this too easily...

 

[bunsen burner]

Haha no I don't have any idea. Clearly working in home loans for four years has left me unknowledgeable.

I'll try to put it another way for you to understand:

LOC
Limit = $200,000
Balance = $110,000
Amount of Money you have available to draw upon: $90,000
Amount you are paying interest on: $110,000
Interest Rate = 7.92%
Interest Payable per Year: $8712

Home Loan with Offset Arrangement
Home Loan Balance = $200,000
Offset Account Balance = $90,000
Amount of Money you have available to draw upon: $90,000
Amount you are paying interest on: $110,000
Interest Rate = 7.12% - 7.52%
Interest Payable per Year: $7832 - $8272

For someone who professes to be all knowledgable on just about every subject, you don't seem to be getting this too easily...

I'd like to know why you have assumed a lower interest rate in your example? There is no set IR. IR's vary depending on lender. They're also negotiable. It is actually possible to get 7.12% in a LOC loan. Surely in your comparison/example you should use the same IR for both loans given we've just plucked them out of thin air (or I suspect you've used what your company supplies)?

 

[Lensen]

If you can show me ANY lender in which a line of credit rate is cheaper than a home loan with offset capability, I'll gladly admit I was wrong.

And yeah, I'm using my company's figures.

 

[Leper]

If you can show me ANY lender in which a line of credit rate is cheaper than a home loan with offset capability, I'll gladly admit I was wrong.

And yeah, I'm using my company's figures.

Being the expert on everything myself, I have to admit I agree with you on this one.

I've never understood how anyone would want an LOC when it is essentially no different to an interest only loan at a higher rate.

My advice to the guy who started the thread is to borrow up to 80% (that way no mortgage insurance) and pay back what you don't need the day after the loan is settled. The only cost is a little mortgage stamp duty, and you'll be well in front if ever you need the $ for a rainy day (so long as you are disciplined enough not to pi$$ this up against the wall).

ps - Wizard >>> NAB.

 

[Eago77]

If you can show me ANY lender in which a line of credit rate is cheaper than a home loan with offset capability, I'll gladly admit I was wrong.

And yeah, I'm using my company's figures.

He's obviously heard about LOC's from a mate of his, it's wonderful how people with no idea can happily advise others on what set up will work best.

A LOC could work well for someone who is older and once the loan is paid down may want to fully draw it again sometime after they retire and at that point have no income to get a loan with. Obviously over time an Offset loan will reduce the amount that could be drawn back out once it has been paid of.

An IO Offset Loan facility is probably even better for investment properties, no nasty reducing in principle while still getting the benefits of an offset account.

 

[bunsen burner]

I've never understood how anyone would want an LOC when it is essentially no different to an interest only loan at a higher rate.

Hmmm, "essentially". But they're not quite the same thing are they? Actually, they're quite different. And those differences are why some people might prefer a LOC.

 

[bunsen burner]

If you can show me ANY lender in which a line of credit rate is cheaper than a home loan with offset capability, I'll gladly admit I was wrong.

And yeah, I'm using my company's figures.

Are you saying it's not possible to negotiate the IR of a LOC to get it at the same rate as an offset loan?

 

[bunsen burner]

He's obviously heard about LOC's from a mate of his, it's wonderful how people with no idea can happily advise others on what set up will work best.

I've actually got a number of home loans including a LOC

A LOC could work well for someone who is older and once the loan is paid down may want to fully draw it again sometime after they retire and at that point have no income to get a loan with.

Or a young person who does not have sufficient income or cash flow. Maybe someone who is geared to the hilt and knows they can pay back the money even though the bank determines it too risky.

LOC is just like a big bad-ass credit card. Rates and fees are negotiable.




An IO Offset Loan facility is probably even better for investment properties, no nasty reducing in principle while still getting the benefits of an offset account.

 

[campbell]

On the brisbane the den board. Loyal Lion is a mortgage broker, Pm him, sounds like a decent person.I am sure they will advise and help you.

Good luck.