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Some mortgage questions. Looking for some answers.
Topic Started: 31 Jul 2014, 11:34 PM (658 Views)
MMM
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Its been a while since I signed a mortgage, and a few questions came too mind. Funny enough, Peter Frasers name sprang to mind first but maybe some others know from previous or recent experiences.

I was going to hijack Peters recent thread here about US GDP to ask the question , but decided maybe its better not to invade the other thread and this mayne be helpful to others also.

So, what I was wanting to know, was , when signing a new mortgage is there a restriction on the amount that you can pay down over the first few years ? if so what are these ? I remember when I last signed a mortgage there was something about not being able to pay off anymore than 30% of the principal within the first three years, or something simliar to that.

The other question was , can you take out mortgages for short periods like 5 years, or even 2 or 3 years for that matter ?
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peter fraser
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MMM
31 Jul 2014, 11:34 PM
Its been a while since I signed a mortgage, and a few questions came too mind. Funny enough, Peter Frasers name sprang to mind first but maybe some others know from previous or recent experiences.

I was going to hijack Peters recent thread here about US GDP to ask the question , but decided maybe its better not to invade the other thread and this mayne be helpful to others also.

So, what I was wanting to know, was , when signing a new mortgage is there a restriction on the amount that you can pay down over the first few years ? if so what are these ? I remember when I last signed a mortgage there was something about not being able to pay off anymore than 30% of the principal within the first three years, or something simliar to that.

The other question was , can you take out mortgages for short periods like 5 years, or even 2 or 3 years for that matter ?
Lets see if I have your questions right.

1. Can I pay back more than the scheduled repayments and if so is there a restriction.

If you have a variable rate loan then generally you can pay the whole loan out the day after it's drawn. I have clients who do exactly that and have the money available if they find an investment that they like, then they will redraw it.

If you have a fixed loan then that is different. Normally they will allow around $500 per month extra or $10,000 per annum. That varies from bank to bank but it's usually around there. Westpac allow 50% offset accounts on their fixed loans, which might help.

Both of the above answers are general, and you should ask your lender about your specific circumstances, but I would be surprised if their answer differed much unless you are dealing with a small boutique lender.

2. Can you take out a mortgage over 2 or 3 years.

Yes absolutely, but why would you. I would advise people to take a longer term but then pay it off in 2 or 3 years if they are able to do that. By doing that you have the option of paying lower monthly repayments. Although that might not be your intention, none of us ever knows what life will throw at us and it's always good to have the option of lower repayments if something unfortunate happens.

I hope that answers your questions.

Cheers.
Any expressed market opinion is my own and is not to be taken as financial advice
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MMM
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Thank you Peter, that pretty much covers all I needed to know.

I did not want to throw a spanner in the works by saying it is commercial.

My main concern is being restricted in how much you can pay down over the first few years and I'm not overly fussed on variable or fixed, but being forced to stay on variable to allow one to pay down more exposes one to interest rate shocks should they arise for whatever reason, where as to have the safety of fixed rates but being unable to pay down what you like. But I am pretty immune from any interest rates shocks should they arise, any lvr would not be too big and you could counter it with some cash in the bank. In any case , I guess an interest rate shock would mean sell immediately anyway.

But thanks again Peter.
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Shadow
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MMM
31 Jul 2014, 11:34 PM
Its been a while since I signed a mortgage, and a few questions came too mind...
If you hadn't sold your Sydney home just before the boom, then you wouldn't be in this position now of having to buy back in at a much higher price.

Live and learn Ted.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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peter fraser
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MMM
1 Aug 2014, 10:43 AM
Thank you Peter, that pretty much covers all I needed to know.

I did not want to throw a spanner in the works by saying it is commercial.

My main concern is being restricted in how much you can pay down over the first few years and I'm not overly fussed on variable or fixed, but being forced to stay on variable to allow one to pay down more exposes one to interest rate shocks should they arise for whatever reason, where as to have the safety of fixed rates but being unable to pay down what you like. But I am pretty immune from any interest rates shocks should they arise, any lvr would not be too big and you could counter it with some cash in the bank. In any case , I guess an interest rate shock would mean sell immediately anyway.

But thanks again Peter.
You should have mentioned that it was Commercial Ted.

For the majority of lenders I will still be right, but you need to spend 20 cents and make a phone call to your lender just to be certain.

You have been telling everyone that rates will keep falling so you would you not take your own advice and fix?

Of you want an each way bet, fix half of the loan.

Any expressed market opinion is my own and is not to be taken as financial advice
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zaph
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peter fraser
1 Aug 2014, 12:37 PM
but you need to spend 20 cents and make a phone call to your lender just to be certain.

I assume Ted's shed doesn't come with a limitless land line phone plan and that all the tin renders a mobile useless. He may have to use a payphone, I'm sure that's more than 20c these days. Perhaps 70?
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MMM
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Shadow
1 Aug 2014, 11:00 AM
If you hadn't sold your Sydney home just before the boom, then you wouldn't be in this position now of having to buy back in at a much higher price.

Live and learn Ted.
I'm not pumping cash into an over leveraged ponzi shadow.

Its industrial real estate for which the return will be double any residential and paid down in a fraction of the time. Its just another place to park some cash for now. The rent on my current IP along with another one and me throwing some earnings in would pay it down in three to five years, If this type of property starts declining I would offload it. My current IP will be paid out in october and Im just parking some cash somehwere else for now, Im holding too much. I will still have near seven figures left after doing this.

Funny enough some might remember a couple of days ago I mentioned I went to look at an industrial property for sale where the agent never showed up, looks like that property has now sold.

Some also might remember where I have mentioned that I have had the same tennant for over a decade. The lease was set to expire in October, might have been September, and I expected he would renew as he always has , usually for two or three years, and I would be using this rental to throw at the other property as well. Anyway yesterday morning my pm phoned me to say that my Tennant is vacating shortly, is retiring and is moving to peters neck of the woods. But he told me that another local buisiness had heard it was becoming vacant and was keen to either buy it or lease it, he said they were keen to sign a lease that with options was over 15 years. Less than half an hour after this , he said he had recieved another email from somebody else wishing to purchase the property. So I am losing my tennant, but there is no shortgage of interest and nothing has been advertised anywhere, all this in half an hour.

And shadow , you should live and learn how to actually own something for once in your life, instead of paying interest only loans.

The fact is , I am only a few years older than you, will have paid off my second Sydney property by October, have held multiple Sydney property for near two decades , while you missed the boat, entered the market for the first time in 2005, and then bought an IP in 2009, you have only ever paid interest only loans. I will pay this next one down in three to five years and will still have near a mill to play with.

So you just keep eating baked beans and paying interest only loans thinking your rich while spending the next ten years of your life trolling the net like you have the last.

I am financially decades ahead of you and only a couple of years older .The way you are positioned in this current economic climate, you risk losing a lot, if not all. You sort of came a bit too late to the party and have left yourself on a knifes edge, not me. :bye:


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MMM
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peter fraser
1 Aug 2014, 12:37 PM
You should have mentioned that it was Commercial Ted.

For the majority of lenders I will still be right, but you need to spend 20 cents and make a phone call to your lender just to be certain.

You have been telling everyone that rates will keep falling so you would you not take your own advice and fix?

Of you want an each way bet, fix half of the loan.
I was going to mention commercial but did not think it would be too much different apart from them usually wanting more down as deposit and I thought others may shy away not being familiar with commercial.

As for fixing or variable, its just tricky in this situation. While I do think rates will keep falling, I also think there is the possiblility an interest rate rise or shock should our dollar get hammered for whatever reason andninflation starts to surface. This could happen independently of any US rates changes.

The thing is this, for me personally a couple of percent either way would not make much difference to me, but you dont want to pay more than you have too, or expose yourself to large rises as unlikely as that looks right now..But for some others , like fhb or less established owners,its an insurance policy worth considering, and you know exactly where you stand for the next few years in these uncertain times.

Persoanlly I would consider locking it in for say three years, if interest rates drop I doubt I will.benefit much as to what may be passed on should I stay on variable, and dont expose your self to rises or shocks should they occur. If this were to happen , rises or shocks that is, I would try and offload the property asap. If somehow interest rates can stay low over this three year period, they will more likely be less than now, and you could lock it in again as by then they can't go lower but here people would definitely start locking for protection from rises seeing they could then go nowhere but up should a movement occur.

My main concern now for Australia is job losses, and the effect this will start to have on the markets . We can see record low rates have not been the magic bullet many might of expected overall, looking at previous highs in all capitals its only Sydney that has only just kept its head above inflation. And we have used a lot of tricks to achieve very little really, at a time when our economy was thriving as opposed to now.

But thanks again Peter.

And zaph , I have a payphone in my pocket. I have not used the payphone you refer too since it was a little red type box superman changed in, like a mini version of the tardis, only red. Is that what you were after :bye:
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peter fraser
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MMM
1 Aug 2014, 07:34 PM
I was going to mention commercial but did not think it would be too much different apart from them usually wanting more down as deposit and I thought others may shy away not being familiar with commercial.

As for fixing or variable, its just tricky in this situation. While I do think rates will keep falling, I also think there is the possiblility an interest rate rise or shock should our dollar get hammered for whatever reason andninflation starts to surface. This could happen independently of any US rates changes.

The thing is this, for me personally a couple of percent either way would not make much difference to me, but you dont want to pay more than you have too, or expose yourself to large rises as unlikely as that looks right now..But for some others , like fhb or less established owners,its an insurance policy worth considering, and you know exactly where you stand for the next few years in these uncertain times.

Persoanlly I would consider locking it in for say three years, if interest rates drop I doubt I will.benefit much as to what may be passed on should I stay on variable, and dont expose your self to rises or shocks should they occur. If this were to happen , rises or shocks that is, I would try and offload the property asap. If somehow interest rates can stay low over this three year period, they will more likely be less than now, and you could lock it in again as by then they can't go lower but here people would definitely start locking for protection from rises seeing they could then go nowhere but up should a movement occur.

My main concern now for Australia is job losses, and the effect this will start to have on the markets . We can see record low rates have not been the magic bullet many might of expected overall, looking at previous highs in all capitals its only Sydney that has only just kept its head above inflation. And we have used a lot of tricks to achieve very little really, at a time when our economy was thriving as opposed to now.

But thanks again Peter.

And zaph , I have a payphone in my pocket. I have not used the payphone you refer too since it was a little red type box superman changed in, like a mini version of the tardis, only red. Is that what you were after :bye:
Interest rates matter Ted. You could buy a $1M stand alone now and get 10% net if you tried, and with a rate of about 5.5% for commercial you would be cashflow positive for $45,000 per annum especially if you fixed for 5 years.

I saw this article yesterday - it may interest you.
http://www.propertyobserver.com.au/finding/commercial-investment/33948-understanding-overall-commercial-property-yields.html

I've just sold a commercial that doubled in value in 7 years and gave me about 15% net rental return from the start, so there is money in them if you know what you are doing. Spread your risk amongst as many properties as possible, keep the debt low, and look after your tenants because property that earns no income is a liability.

It comes back to management as always.

There are some commercial lenders who offer offset accounts but I can't recall them off the top of my head. I borrowed against my residence so that the IP's were unencumbered, interest rates low, repayments low, and I had an offset. There is nothing like being cashflow positive.

It does seem funny that after months of taking the piss out of commercial properties you are now buying one. That said the best buying is when everyone else is staying out of the market, so the times that look the worst are actually the best for a buyer.
Any expressed market opinion is my own and is not to be taken as financial advice
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