Refinancing a 400k loan up to 80% LVR (without incurring LMI)
400k * 80% = 320k
320 - 250k = $70k equity available (not $150k)
Interest only 5yrs repayment: $1,174/month @ 4.4%
$300/wk rental income = $15,600 income ($1,200/month)
Property near positive geared - excluding rates, body corp, maint, fees etc
800k house @ LVR of 90% if willing to pay LMI around $700k loan (estimate stamp duty applied as well)
$70k equity + $30-40k cash savings will fill the shortfall between Loan vs. House purchase
$700k loan @ 4.4% P&I = $3,500/month repayment
$150k incl Super income is around $8000/month income (after tax)
Bank usually says Single person living expense is around $1100/month (not sure what a couples monthly spend would be - lets say $2k)
$8000 - $2000 - $3500 = $2500/month left over
Don't see any issues with their borrowing vs. income. Could have missed some points, speak to your local mortgage broker on a more realistic assessment on your borrowing.