One of the issues that first time or even second time home buys when taking out a mortgage can have is which type of home loan to take out. There are hundreds of different loan’s out there and so it can be difficult to decide which to take out that is most appropriate for ones individual circumstances.

Do the high street bankers (especially the young wannabe bank employees) know about all the available loans or just about the particular ones they are commissioned to sell, and whose interests are they really taking into account.

It certainly plays to educate yourself.  Here are just some types of home loans that are available in Australia that could be considered for further research

• Non Conforming Lo Doc Home Loans
• Specialised Prime Home Loans
• 100% Established Home Loans
• 100% Construction Loans
• Professionally Packed Home Loans Through Company Ownerships
• Standard Variable Home Loans
• Basic Line of Credit Home Loans
• Enhances 80% Home Loans
• Conforming Assent Lend 70% Home loan
• Non Conforming Full Doc 90% Home Loans

Buy or Rent

I have an opinion on this and I think it’s probably more to do with my generation, willingness to succeed and do things outside of the box. There are obviously for’s and against buying or renting but at this moment my decisions will always be to Rent & Buy.

You see, as mention in other posts other generations (the 95%er’s) as I relate them too have been brought up to  ensure their children go to university to get a degree in order to get themselves a better job and settle down in their own home paying off their mortgage and doing the same thing until retirement.

YOU DON’T NEED A DEGREE TO BE SUCCESSFUL

In simple terms I do not want to commit myself to be living in the same house for the rest of my life paying a mortgage on a residential property. I would however commitment to paying a mortgage on an investment property. Why?

As my mother once said “You should buy you own home so you have something you own and can call yours.  It will increase in value earning you the capital gains, and besides you will never ever own the rental property”

1. Weather I own a home or not, will it always be 100% mine?  What’s saying the bank wont use it for collateral for anything I required in the future, meaning bank or lender will essentially have some degree of control or say over it.  Likewise what if the council have power to remove your house if a new motorway was planned to go through your land.  I believe a person can never have 100% total control over their property, and if they do it would have taken them 20-30 years or so depending on the loan payments to have that advantage. Who says I’ll live that long
2. Why pay the principle component of an ‘principle and interest’ loan when I could be using that same cash towards an investment property.
3. I would need to work harder and have a much bigger steady income in order to meet my payments, where as renting myself wouldn’t need as much.
4. Purchasing an investment property to rent out would eventually be positively geared costing, coats minimal to maintain and at the same time being able to provide a bit of income.
5. Any top up payments whilst in negative gearing territory would be far less than the amount required to pay a full ‘principle and interest loan’
6. Not committing to my own home means I am free to do what I want with my life.  I love travelling and certainly like a change every now and again.
7. Purchasing an investment property also means just about all associated costs are tax deductible. (In Australia and New Zealand at least)
8. Therefore the tax man essentially ends up contributing to my purchase.
9. Investment property rent payments will almost always go up over time.  Will the interest rates for a standard ‘principle and interest’ loan generally go lower and lower, not really.
10. For me to rent a property for my own living purpose, this means I only need a smaller income to just pay rent, bills and general living costs.
11. I have no upkeep or maintenance to be concerned about.  You might argue I have these expense on on the investment property, agree this is the downside if I bought or rented, but any maintenance or other major costs would again be deductible from the tax man when applicable to the investment property.
12. From the tax man’s side of things, any reduced taxes means I can have these distributed through my PAYE meaning more pay in my pay packet should I ever have to work in paid employment.
13. I still have the luxury of being able to live in it myself if I so desired… And still only pay an interest loan. Although this wouldn’t be then tax deductible.  But paying an ‘interest only’ only is far better than me having to folk out for ‘principle’ as well.
14. I.am still able to take advantage of  capital gains.
15. I am still able to extract equity for further properties.

My belief is never to own outright, but always able to have a minimal risk but even more importantly is being able to:

“Control It”

Offset Loans

I am sure there will be people who are paying off a mortgage that may not know what an offset account is or how it works.

Basically this is a special bank account that sits along side your mortgage account that allows the amount of cash in there to be offset against the amount of your overall lending balance.

For example:
If you have a loan of $300k and you have $20k in the offset account that would mean your mortgage payments are based on $280k (300k – 29k). I wouldn’t think the offset is available on all types of loans as I am not an expert in this field. However it always pays to enquire and if you don’t get the answer you want then you can always negotiate especially if this will make the difference between which lender to go with.

Never underestimate the power of negotiation.

Extracting Money Out Of Your Property Through An Equity Loan

(This is a basic synopsis only and should not be considered as any advice or a recommendation. For further information seek you own private advisor)

A home equity loan or line of credit allows you to borrow money, using your home’s equity as collateral.
The equity on a property is simply the difference between the current value of the property and how much you owe on the mortgage. That difference can then be used to structure your equity loan (or 2nd Mortgage as this is perhaps more commonly known).

This equity can be withdrawn with a “line of credit’ and be used at free will, weather it’s for university fees for the kids, the weekly groceries, or as a deposit for a new property. Essentially it is money you can extract from thin air.

Like any mechanism to obtain money in any form there is always the downside risks. So basically the property would be the collateral that you would pledge as a guarantee that you will repay the debt. If you don’t replay the debt then the lender can take your property (the collateral) and on sell it to retrieve the monies owed. Therefore the down side risk is very simple. If you don’t pay up, you loose the property.