Author Topic: Is it better to pay off house or buy another before end of mortgage  (Read 2845 times)

leegun

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Hi guys
Love this site but dont post that much

Basically I am about 4 to 5 months away from paying off my house mortgage and want to know is it better to buy another house now or wait until it is paid off?
The thing is the house is in a different state in Australia so I dont get to live in it and I pay more rent where I live that I get from renting my house out

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10882
  • Age: 61
  • Location: NorCal
Re: Is it better to pay off house or buy another before end of mortgage
« Reply #1 on: October 08, 2014, 10:27:17 PM »
More details, please. I'm not clear on why you "NEED" to buy another.

leegun

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Is it better to pay off house or buy another before end of mortgage
« Reply #2 on: October 08, 2014, 10:38:55 PM »
36 years old
65+K job a year
Live in Australia

I had always planned to buy a second property that I could eventually rent for $400+ a week. And thus semi retire once it was paid off while living in the house that is almost paid off




gooki

  • Handlebar Stache
  • *****
  • Posts: 2382
  • Location: NZ
Re: Is it better to pay off house or buy another before end of mortgage
« Reply #3 on: October 09, 2014, 12:56:06 AM »
What do you consider is better? Are you concerned your bank won't loan you as much money if you don't have a current mortgage?

In my experience the banks don't care. They are looking at your total equity, ability to service the loan, and your credit history.

agent_clone

  • Bristles
  • ***
  • Posts: 252
  • Location: Australia
Re: Is it better to pay off house or buy another before end of mortgage
« Reply #4 on: October 09, 2014, 04:49:51 AM »
Do you have the money saved for the new house to avoid LMI?
Why are you purchasing in a different state?  Do you know this market well enough to make a good decision?
If the house doesn't have a tenant for a couple of months will you be able to service the mortgage?
If you are taking equity out of your current house to buy an investment property there may be tax implications here.

Also I think I remember somewhere suggesting not to mix your PPOR and investment properties loan/security wise. i.e. don't use your PPOR as security for getting a loan for the investment property.  I'm not sure if this is what you are planning or not though.

leegun

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Is it better to pay off house or buy another before end of mortgage
« Reply #5 on: October 09, 2014, 03:33:07 PM »
I have money for redraw, enough to cover a 20% deposit and a second place, would that stop me from paying LMI? I guess this is one of my main questions

Bought the house in my home town where I mainly grew up as I know the area, pros and cons etc plus have family there to keep an eye on it

PPOR = primary place of residence right?
The place I live is great for work but a terrible town imo I cant see myself living here for ever. So making the most of the money I make now



agent_clone

  • Bristles
  • ***
  • Posts: 252
  • Location: Australia
Re: Is it better to pay off house or buy another before end of mortgage
« Reply #6 on: October 10, 2014, 07:01:22 AM »
PPOR is the principal place of residence yes.

So are you buying a second house in your home town to rent out?  Personally I don't think housing is a great investment for most of Australia at the moment, however this is a personal opinion.  If you have a 20% deposit you should avoid LMI, there are a few exception to this (e.g. it is a unit less than 50m2, or you have variable income).

If you are redrawing money from your current loan then I believe there are tax implications what they are I have no idea as I have not purchased investment properties.  I just know that redrawing money is considered different to the money in an offset account.  I expect that you would also want to redraw this prior to the mortgage being completed and discharged.

leegun

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Is it better to pay off house or buy another before end of mortgage
« Reply #7 on: October 10, 2014, 04:19:50 PM »
Definitely looking to rent the second house out, but there is the problem. Finding a house with rent the same or better than the repayment in Australia

Will have to speak with the bank about the tax implications. Thank for bringing that up I hadn't really thought about it

In the past the bank said redrawing was no big deal. It doesn't affect credit rating and was free and unlimited. They said I could redraw all of it and buy a brand new car if I like lol