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News
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Case Studies
Upsizer
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Who are they |
Jennifer works for a Media Company, she earns $80,000pa
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| Current Situtation |
She owns her own home worth $420,000 and has paid her mortgage down to $140,000. |
| Finance Objectives
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She wants to upsize while the market is soft, and went to see her local Bank Manger, who advised herthat she could buy a new home by using the equity in her current property and she can keep the existing home as an Investment property. |
The Problem |
She liked the idea of buying her new home and retaining the current property as an investment property and she was pleased that she could do both, however was not aware of the cashflow problem that this would create.
The new home is worth $600,000. In total closer to $630,000 with associated costs.
Mr Bank Manager would happily lend her $480k against the new property and a further $150k against her existing property. She gets the nod as she has enough equity and serviceability to proceed.
Jennifer was then referred to Altitude Finance as she was concerned about her cashflow. Altitude took the time to understand her situation and explains the problems she sees with Mr Bank's suggestions. In essence Jennifer will have up-sized all right! Her non-deductible debt (or home loan) will have jumped from only $140k to a whopping $630,000!
The monthly interest cost of the respective loans will have increased from circa $642 to $2,888. That’s an additional $2,246 per month in interest payments which equates to a 350% increase!
All this, for a property worth only $180,000 more than her current one. |
| The Alternative
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The suggestion is to consider selling her home, once she pays the associated costs & her mortgage, this will leave her with approx. $275k in CASH. She then puts this towards her new home, bringing her non-deductible debt down to $355k, almost half of the home loan Mr Bank Manager recommended.
Benefits:
> She saves over $1,200 pm in interest payments. AND, she can still have an investment property now that she has reduced her non-deductible debt using the remaining equity in her new home of 125k towards another property.
> With her deposit of $125k, she can afford to buy a property worth $500k, with a mortgage of $400k.
> She has therefore recycled her non-deductible debt into deductible debt. The total debt of $525k is for investment purposes and is therefore all the interest and associated costs are deductible.
> She can also go one step further and spread her risk by diversifying her 2 loans with different lenders rather than one lender having both properties as security as per Mr Bank Managers proposal.
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First Home Buyer
| Who are they
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Kate & Damian. Young De-facto couple both working full time |
| Current Situtation |
Kate & Damian, have been renting for past 2 year, currently paying $450pw. They have also led a good life, but only have $5,000 in savings. |
| Finance Objectives |
They want to buy their first home taking advantage of the Government incentives and first home boost prior to June 30. They were looking to buy for $500,000. |
| The Problem |
They didn’t think they had enough deposit, in fact they had no idea what they needed. They only had $5,000 in savings. They also had some credit card debt.
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| The Solution
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$500,000 Purchase Price
$475,000 Loan
-$ 2,500 Legals & Inspections
-$14,000 First Home
Owner Grant
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$13,500 Deposit Required
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Knowing this information, Kate & Damian were able to ask their family for help. Kate’s mum kindly gifted them $15k to make up the shortfall.
The Interest cost of the loan is $2,222 pm or $512pw based on the current variable rate. They were currently renting for $450pw. So to own their own home would cost them an extra $63pw.
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Reverse Mortgage
| Who are they
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Ron & Jill own their own home in Drummoyne, NSW worth $1,200,000.
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| Current Situtation |
They have lived in the same home for 20 years. Both Ron & Jill are in their early 70's and rely on the pension as their main source of income. They also have a small portfolio of shares which help them live comfortably. |
| Finance Objectives |
Their son and daughter-in-law want to purchase a property to live in and set up family life. However being short of a deposit, Ron & Jill want to use the equity in their property to assist. |
| The Problem
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With only a nominal income, it would be difficult for Ron & Jill to take out a standard mortgage. There were several options available to Ron & Jill. They could give a guarantee either from an equity or servicing capacity. However Jill was not comfortable in being a guarantor and wanted to remain independent of the transaction.
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The Alternative |
After discussing all the possible options, Ron & Jill decided a Reverse mortgage would suit them best.
They took out a loan of $120,000 in total which was well below what they could qualify for. They gifted $80,000 to their son towards his property purchase as a lump sum and kept the rest in a redraw facility until they needed it for their own personal use. They never have to make a repayment and they are able to stay living in their own home.
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