Interview with a Mortgage Broker
In my line of work, I have the pleasure of dealing with a range of professionals, who, like me, have experienced a significantly broader range of scenarios in their particular fields, than a lot of individual investors when it comes to property investment. This month I interviewed a mortgage broker I know and like – Kathy Stammers from Inovayt – who has shared some of the golden nuggets she has picked up in her 10 years in banking and mortgage broking, and her personal experience in property investment which she has being doing longer still.
What’s your biggest tip for someone looking to buy their first investment property?
Know where they stand financially. It’s important to know what your financial capabilities are prior to purchase so you can buy with confidence! Rather than buy reactively. It’s important to plan! Don’t over capitalise.
Don’t get personal in the purchase. This is a big mistake. It’s for an investment. Source the right suburb, with access to public transport, etc …
Don't cross their home and investment properties to secure funding. If possible, it’s best to top up your existing loan as a separate split to fund the deposit and costs for the new purchase.
Many people don’t realise that if you seriously defaulted on your investment property and the bank wanted to sell you up to reclaim the debt. They will sell the highest value asset (which in most cases is someone’s home).
It’s important to get the structure right upfront!
How much money should they have saved to buy an investment property?
As a rule you want to contribute at least 10% of the property purchase price plus the Stamp Duty and completion costs – e.g. $500,000 + $27k cost to complete would require $50,000 + $27,000 = $77,000.
So you would want $77,000 in savings or $77k equity in an existing property. Everyone’s circumstances are individual so it’s important to know where you stand. If you have another property, you will be able to access up to 90% of the banks valuation to fund the purchase.
Can they turn their current home into an investment property? What’s the finance implications?
Yes you can, however you may find your previous home loan will switch to an investment loan on a higher interest rate. There are also tax implications that need to be discussed with your accountant. It’s important to get the structure right to maximise your investment opportunity, that is why often it is good to have an offset account on your current home to start with, if you are thinking it may one day become an investment property
What if they’ve had a home loan for their investment property for a couple of years? How can they get a better deal on our current home loan?
You would conduct a full finance review to ensure the correct interest rates are connected to the correct purpose of funding. Generally investment lending carries a higher interest rate to lending for your home. It has come down though in the last year.
Anyone who has had a loan for a couple of years really need to check their rates, as in recent times they could be paying a whole percent more.
If getting your property loan/s reviewed has been on your to do list and / or is going to be one of your new year’s resolutions, I would be happy to introduce you to Kathy.