Mortgage and other things (mortgage related)

I created this blog as a diary hoping to journal my journey as I purchased our home in Sydney. This post is going to be a bit $$.

I moved into our home 3 years ago. Its a 3 bed, 1 bath home for a family of 4 that includes 2 school going kids. 1 bath can be a recurring issue in the mornings. Having said that, I like the home as its mine. I would love to wholly own this home at some time.

We have recently started looking at investment properties. Our current mortgage is with one of the big 4 banks. So we went to talk to them about this. We told them our conditions and estimates and they gave us the initial thumsup.

We had another meeting with them where we had to sign papers and tings were diffrent. During the past week the interst rates had jumped by 0.25%. It was a bit higher but manageable.

To our shock, on the second visit, we were told we were going to take up only a smaller amount equity released. We had told them we would use none of our offset but all of the equity from our PPOR, if required, to purchase our investment property. Our offset keeps cash available to us and reduces our interest throughout the year.

We funnel all our income into that offset and I have set the only credit card we own, to that offset. Every cycle , the credit card balance is automatically paid off in-full, from our offset. As our offset gets bigger slowly (after expenses and emi), it eats into the interest component of our emi. So all in all, it has been going ok. A bigger chunk of our principle gets reduced and I pay the bank lesser and lesser every fortnight.

So, when the banker said we can only take a fraction of our equity released and not the entire amount, we were a bit shocked. Especially when last week, we were told the entirety of the equity could be released for our next purchase.

The reason for that change , was cited as this. One of us is on the title and the loan; I am not. The investment property will be in my name. I dont know why we set it up lik this initially, but thats how it is now. The new equity released loan will be under both our names. The new property will be in both our names.

Well, this is what we told hte banker. He said due to the way the title and loan for our PPOR is under my spouse’s name and the new property and loan will be under both our names, the equity released will not the entire amount (80% of total equity). What we got was about 50% of that amount, which was surprising.

We also informed him of my plan. My plan was to go interest only on our PPOR as our interest is quite low now – $7xx per month and reduces every month by a few dollars. Going interest only will put more money into our pockets and help us plan this next property better as we have more money. This would be for 5 years and will help us catchup on other investments. We are not young; we need to catch up on our investments.

What could have changed the banker’s mind? Is it because of my plan? Does going IO on our PPOR scare the bank that they think we should be forced to pull money out of our offset at all costs?

Or was it that we havn’t paid as much interest as a normal customer would have paid over the 3 years that we have had this loan? Or that we absolutely don’t want to touch our offset and insist on only using our home equity for the next purchase?

The offset assumption might be right. I say this because when we brought up a certain request to secure our offset with MFA, we were told the only sure-shot way to secure our accounts was to pay off the loan. Now, someone would have to be high to get rid of all their cash to implement a loan payout whose only immediate beneficiary is the bank and you are at immediate loss. All your money is now in the bricks of your PPOR. So technically , the bank suggested that the only way to totally secure your savings is to get rid of it!!

Lets see how it goes. We have started speaking to a mortgage broker after the second meeting. I want to keep my options open for now and check what other banks think of our situation.