Saturday 17 December 2022

Investment unit final inspection and mortgage approval 'dramas'

DW and I had our 30 minute 'final inspection' tour of my new investment apartment today. Looks very nice and I couldn't find any defects that require fixing. In any case there will still be a 90 day period after settlement (in Jan/Feb) where any defects can be reported and must be rectified by the builder. The view from the balcony was as good as I had hoped for (although the weather wasn't great), and the finish of the apartment is excellent, so I am very happy with how the construction turned out. They even 'threw in' some extras that were not specified in the contract signed in 2019 (blinds for the bedroom and living room windows, a fitted microwave, and a nice fitted refrigerator and freezer drawer). The floor plan appears to be as per the original design, around 65 sq m (which is good as the contract allowed up to 10% variation in the final floor area). I'll be initially letting out the apartment - the rent is expected to be around $700-$750 per week. The agent said an identical apartment six floors above mine (and with a car space) recently sold for $1.5m. A car space adds about $100K to the price, and the price increases by about $10K per floor, so this would mean my apartment should be valued around $1.35m (I had guessed it would be somewhere in the $1.2-$1.3 million range). Including stamp duty and legal costs, the purchase price was about $1.05m, so I have made a 'paper profit' of about $300K (maybe).

                        A 'room with a view'

Unfortunately getting loan approval hasn't gone as smoothly as I had hoped. The rise in interest rates during the past year certainly hasn't helped with the 'serviceability' calculation. After making the required $400K reduction to our existing 'portfolio loan' line of credit, the bank lender passed on our application to a different loans officer, and they now said that further reductions in our existing credit limits (eg cancelling credit cards, reducing the existing line of credit further) would be required for the loan to be approved - but wouldn't give an exact amount to ensure approval. As I don't want to end up without financing in place for settlement in January or February, I talked them into agreeing to reinstate our previous 'line of credit' (back to the previous $850K) which means it will be sufficient to settle even if I can't secure a property mortgage loan. In the meantime I will submit a new loan application (the previous application had mysteriously disappeared off the bank's system during the past week) and hopefully will get 'provisional approval' that will be subject to reducing our overall existing credit limit by a specified amount. Depending on how much mortgage would be approved (and how much existing credit line would have to be eliminated) I might end up either funding the $800K required to 'settle' using a property mortgage (at about 5.8% pa interest rate) or else have to use the 'portfolio loan' line of credit (which is currently at 7.8% pa interest rate). I'd obviously prefer to get funding via a mortgage if possible.

In case I end up paying 7.8% interest (or more, if interest rates rise again) I have been busy cancelling some of my existing savings plans and eliminating my 'salary sacrifice' into superannuation. This should increase my 'take home pay' by enough to be able to cover the required interest only payments on the 'portfolio loan', provided I also put in a request to the ATO to vary the amount of PAYG tax withheld to reflect the anticipated net reduction in taxable income. Things will be a lot more comfortable financially if I can arrange a property mortgage to fund the purchase.

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