I am looking at equity loans, to invest in property.
I want the loan based purely on the equity I have already built up in my own home. How do I get the loan? and from who?
I've been searching the net, and found lenders, looked at their forms, and all want to know my income details. I don't want the loan based on my affordability, I want to use the equity in my PPR.
I also want the loan to have a 100% offset account.
Can anyone walk me through this?? Where to look, which lender does straight equity loans ect.
Also if I'm missing something here please tell me.Thank you,
Max LVR would be 60% so if you have equity in your own PPOR then you will probably get this upto 100% of the new IP property.
In saying this with every traditional loan you are required to state an income even if evidence is not required to be produced.
More details would be required to provide an accurate answer.
Richard Taylor | Australia's leading private lender
Hi
I think you may have some misconceptions about lending. To get a loan you need to convince the lender you can afford the repayments. This is the case whether you are releasing equity or buying a property – in fact the lender will be more worried with releasing equity as you can just walk away with the money and spend it. At least with a new property purchase you will have rental income coming in.
One exception to this is the so called No Doc loans or asset lends where the lender doesn't care about your income at all. These loans were popular a while back, but have largely disappeared. There are a few still around, but the rates are 9%+.
Also, you must consider that having another loan will mean you have extra repayments and this will affect future borrowings as well. They base the calculations on the limit of the loan, not the outstanding balance. So this can hurt serviceability if you have a large line of credit sitting there with no income coming in.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thank you for your reply QLD007 & Terryw. You have given me good information, which I am still getting my head around.
I am frustrated though as I was talking to an investor about a year ago who did the following for his retired mother who had little income;
Took out a loan against the equity in the house. I can't remember the amount but for this example lets say they borrowed $600K.
Put the $600k in an offset account and used it for the deposit on an investment property. Take out another no doc loan to purchase the investment property.
Rent didn't fully cover the loan repayments, but the remainder in the offset account was drawn on weekly to top up the difference.
His theory was that the property would appreciate in value faster than the $$ in the offset account went down.
Down the track the equity in the property has increased, he would get her to refinance against the higher equity.
His aim was to fund her retirement using this strategy.
What I don't understand is how she got the equity loan if she had no income??? I know it was either a no-doc or low-doc loan.
Terryw I guess it was an asset lend, so maybe I have missed the boat for this type of loan at a reasonable rate?Maybe this strategy worked then but won't work now??
yeah, that would have worked in the past. But these days asset lends are about 9 to 12% pa in interest and the loans are only usually for 1 to 2 years so it could be very risky
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terry is correct investors who used to live off equity are finding those days have gone as most lenedrs require some form of evidence if it is merely a stated income on the application.
With fewer lenders offering such products they can rate the risk accordingly and charge appropriately.
Richard Taylor | Australia's leading private lender
Thank you both for your information, it seems it is back to the drawing board for me.
So what are some of the better strategies out there?
I can't physically work at the moment, my partner does but has low income. We have great equity in our home.
These days there is not much choice, unfortunately. There are low docs still, but you will need to prove you are self employed to qualify – usually this is done by having an ABN for 2 years + and probably GST registration too. Some lenders are even asking for BAS statements for low docs – to see if the income declared in the loan application matches what is being declared to the ATO.
Other than that there are normal loans – where you will need proof of income to qualify.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry, that makes a whole lot of sense now.
That kinda only leaves the slow option of buying one IP, increasing equity and rent, than down the track buying another one.
Time to read more and get my head around it, work out where to from here.
Thanks for your help.
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