Hi there,
Just a newbie question.
I understand that LOC interest is not charged until you use the funds.
I have say Eisting Mortgage of 100K on 300K PPOR, with 50K I can redraw due to being ahead on payments over the years.
Say I refinance and get a LOC on the PPOR say valued at 400, Banks will lend 400×80% = 320K and thus 320-100 = 220K equity I can get access to for deposits on IPs,
Would I start geting charged LOC interest if I redraw 50K on that LOC?
Or would it be better to redraw 50k from existing loan before refinancing for LOC. Thus 100 + 50K = 150K Existing Mortgage.
Banks will lend 400×80% = 320K , and My equity 320-150 = 170K loc equity?
so net effect is the same, 50k rewawn + 170K LOC = 220K equity.
This way, I could use 50K without LOC interest kicking in.
Is my logic correct or am I missing something?Should I just get LOC without touching the 50K funds I have in the existing Mortgage?
Cheers
Abbruzzi
[blink]Hi there
The interest calculations assuming the same rate of interest is being charged is identical.
I guess the burning question is what you will do with the $50K redrawn. If it is for personal purposes then fine to go ahead and redraw but if it is for investment purposes then you would probably want to separate the accounts for interest calculations.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner.
Ph: 07 3720 1888
[email protected]Richard Taylor | Australia's leading private lender
Richard,
Thanks so much for your reply.
Yes I intend to use all redrawn funds for Investment.
So you are saying, there is no need to redraw the 50k before getting a LOC. Because I will incur interest anyway by it not contributing to pay off debt, wheather it is in homeloan or IP.
I was thinking that in my situation I could just keep my existing home loan and redraw up to 50k for a deposit and fees. And get an interest only loan for any investment property I find. Then I wouldn’t need a LOC for the investment. But that would leave me with no surplus funds for anything that may eventuate, (personal or investment wise)
With a LOC I would feel safer that I have all the equity in my PPOR avaliable. And I wouldn’t be paying interest if I don’t use the LOC.
For future IPs the Line of credit would be advantageous though, yes?
Any thoughts?
Regards
Abbruzzi[biggrin]I got lost, but would you look at pre-paying intertest for invsetments sake (say Monthly) would you repay the interest or capitalise it ?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Online Positive Cashflow and Renovating CalculatorsCorrect
There is no need to withdraw the 50k beforehand, unless you need it right now, but be careful. It is best to have a second account for accounting and taxation puposes.
If you are refinancing you would set up the new loan with –
one split of 100K for existing mortage.
second split of 220k for investment purposes.You MAY be able to ask the bank, who you are with, to set up a second LOC for 220K, and reduce the first account down to 100K
Regards
JohnInspired Finance
(02) 9944 7776
You must be logged in to reply to this topic. If you don't have an account, you can register here.
