You have spare cash of $390,000 in your bank account. You also own a residential property as an investment. The original purchase price of the property was $600,000. You borrowed 80% of the original purchase price to buy the property and the loan is an interest-only loan. The property is now worth $750,000. You recently found a newly built townhouse and are considering buying it as your home. The negotiated purchase price is $1,290,000. As part of your negotiations with the vendor, you managed to secure the attached townhouse next door for $1,230,000, which you intend to use as a second investment property. You will now approach your bank to make a loan application to buy the townhouses. Assuming that you have sufficient future income to satisfy the serviceability requirement of the loan application:
A)
What will be the total market value of all three properties if you successfully purchased the townhouses? Show all workings.
B)
Answer parts (i) to (iv)
i. What is the loan amount you have drawn down to buy the existing property?
ii. If you are prepared to use $180,000 of your savings as equity to buy the townhouses, what is the loan amount you will need to buy the townhouses?
iii. Therefore, after the purchase of the townhouses, what is the total loan amount you will now owe the bank?
iv. What would be the overall Loan Value Ratio (LVR) of the total loan amount you will owe the bank based on the current market value of the properties (round to 2 decimal places)?
C)
In your initial discussion with the bank, your bank manager indicated that the bank was willing to lend up to an overall LVR of 80%. Based the LVR of the total loan amount you owe the bank, would you expect that your loan application be successful? Please explain your answer.
D)
After further discussions with your bank manager, you were advised that the bank would be prepared to lend up to an overall LVR of 95% if you agree to take out mortgage insurance of $36,000, which can be added to the loans. Assuming that you agree to pay mortgage insurance by adding the insurance premium to the total loan amount, what would be the total loan amount you would owe the bank after buying the new townhouses?
E)
After taking into account the mortgage insurance premium, what will be the new overall LVR of the total loan amount based on the total market value of the properties (round to 2 decimal places)?
F)
Based on your new overall LVR, would you expect that your loan application be successful and why?
G)
Please show your calculations to support your answers for the following sub-questions.
i. If you are unwilling to pay mortgage insurance, what is the maximum overall loan the bank will be prepared to lend you?
ii. Assuming that you do not have other borrowing options, what is a potential alternative to enable you to secure the loan?
