Emma & Aaron are a working couple, earning $150,000 and $95,000, plus super, working full time. They have two children who are 3 and 4 years old. Right now their living expense are circa $5,000 apart from their mortgage repayments.
The existing home they purchased is a 2-bedroom Townhouse in Sydney for $450,000 in 2013, owing $360,000. The property is worth $750,000.
In 12 months their oldest child will be starting primary school. School quality is a big consideration for them and with a growing family they need a bigger place.
They are looking to purchase a $950,000 duplex.
They have considered selling their home so they can purchase their next home. However, they feel ideally, they’d like to make the current home an investment property as it won’t be costing them much to hold on to the property, given the potential rent of $450 per week.
Emma & Aaron, actually don’t need to sell. They can make their current property into an investment property.
Challenges Emma & Aaron…
- The current loan term remaining is 26 years and its Principal & Interest, whilst this property will become an investment property and really should be converted to Interest Only repayments. Their focus really needs to be paying down the principal for their new home
- The lender has been inflexible with the cash out to do their next purchase
The keys are, selecting a lender which will allow Emma & Aaron to:
- Consider desktop valuation up to 80% Loan to Value Ratio (so they can maximise what they equity they can extract)
- Extract the equity as cash out for the relevant purposes for their next home purchase
- Convert the current loan into Interest Only repayments and extend the term back to 30 years
- Structure the loan such that they can maximise the tax deductibility of the property which will become an investment and focus on paying down their next home
First, Emma & Aaron need to speak with a savvy mortgage broker to determine their borrowing capacity and how they should structure the loan.
They need valuations to get the ball rolling so they can go shopping on their home.
This is what they ended up with…
Current Home:
Loan Amount = $360,000
Valuation = $750,000
80% LVR = $600,000
Equity Extract = $240,000
Emma & Aaron will have two loan splits created, for $360,000 & $240,000.
How long this refinance would take – 4 to 6 weeks – i.e. they will have the funds ready to go shopping for their next purchase.
In parallel, Emma & Aaron, request their broker to put in a pre-approval to make the next purchase. They manage to get a pre-approval for a $950,000 purchase.
Here is what they require to complete this new deal:
Deposit of 20% = $190,000
Stamp Duty = $38,517
Conveyancer = $1,600
Building & Pest Inspection = $400
Total Funds Required = $230,517
Emma & Aaron can go complete the deal for their next home with these funds, without requiring to sell their home. Especially because they want to hold on to this property, this is the most efficient way for them to get into their next home.
If they didn’t want to hold on to their existing home, Emma & Aaron can consider what’s called Bridging Finance, which would allow them to consider refinancing their home to a Bridging Finance friendly lender. Then go on to purchase their home. They will however be required to sell their existing home within 6 months from the process. We will discuss this in a separate case study.
Want to get the ball rolling? Ready to make the move? Or simply starting to think of the next steps? Get In Touch with Sana & Mona Ali on 1300 97 60 60 or [email protected]
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