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Mortgage Down

How does this work?

Mortgage Down is a new product for clients who have a home loan and an investment loan.  The product is aimed at balancing the scales in favour of repaying your home loan faster, and leaving your investment loans attracting more deductible interest while you do so.  This enables you to build a portfolio but achieve home ownership much sooner than you might have expected with your current interest rates and repayment model.  The money you can save on your home loan interest can go directly into paying down the home loan principle.  The product is supported by an ATO Product Ruling and is for Australian residents only.

For example, a client has a home loan of $395,000 with an interest rate of 4.25% principle and interest, and an investment loan of $675,000 with an interest rate of 4.89% interest only.  With mortgage down the new home loan rate reduces to 2.30% (remember this is not a deductible loan) and the investment loan increases to 5.79% (remembering this is a fully deductible loan).  If the clients continued to repay their home loan at the old repayment level, they would save approximately 8 years 6 months and $46,300 in interest.

Are your children struggling to save a deposit for their first home?  In the virtual absence of government incentives for first home buyers, particularly in New South Wales, there are solutions.  Known generically as a family pledge loan, if you have available equity in your home or investment property you could use some of that equity to assist with the deposit.  As long as the children have a savings history it may be possible for them to borrow up to 100% of the value of the property they wish to purchase, as long as they have funds to pay the stamp duty, legal and bank costs (around 5% of the purchase price).  This could save them expensive mortgage insurance – which only benefits the lender.

It works like this.  The children want to purchase an apartment for say $700,000 and have saved about $35,000.  With a traditional loan they would need to have saved at least a 10% deposit plus costs.  This works out to be $105,000 and then mortgage insurance would add about $15,000 to the cost.  If they can access equity in a family property to the value of $140,000 (20%) there will be no requirement for mortgage insurance and in nearly all cases the interest rate will be lower.  The children must be able to service the entire debt on their own, and the parents risk up to $140,000 if the loan defaults.  Over a period of a few years, assuming property prices continue to rise modestly, the guarantee can be extinguished when the equity the children have built reaches 80% of the property value.

Ask us how we can work this out to benefit your children, without you having to borrow or gift cash.

When did you last check the interest rate on you home loan, or have a close look at how your current mortgage suits your needs?  Some lenders are now offering 2 year fixed loans at rates as low as 3.69%.  There are quality variable rates now available for as low as 3.69% (in both instances owner-occupied loans only repaid by principle and interest instalments).  Do you have an expensive line of credit?  We can look at equally flexible products which have much cheaper interest rates.

If you would like to receive a free general consultation of your financial mortgage needs please don’t hesitate to contact Ken Batten, our dedicated Mortgage advisor, on 02 8404 6700.

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