Say I bought a house for $100,000 at 90% finance and I put a deposit of 10% which is $10,000 (so I borrowed $90,000).
If I look to buy a second investment property for eg’s sake is $100,000 also, am I able to use the 10% equity I have in my first property ($10,000 out of $100,000) as a deposit on another 90% finance deal on a seperate property? Or am I on the wrong track.Brizza, No you can’t. Just add up the total value of the property and the total value of loans and multiply by 90%.
You may be able to go to 95% though.
Terryw
[email protected]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
ok, so that 10% stake I have in my $100,000 property, does the bank own that? or is that just part of my loan that is counted as being payed off? So I can’t use that $10,000 as equity at all? Is that $10,000 equity that I own?
you need to maintain at least 10% equity. The $10k is yours, but they wont allow you to leverage off it twice.
Thank you for the question and answers all!
I was not sure on that issue either, learn something new everyday!
ah ok, I think I’m picking up. I know that you “have” to do this and this is the case (that you can’t use your deposit as equity on something else) but I’m just wondering as to the “why” bit.
Is it mandatory for all finance deals, that you have a 10% (or 5% in some cases) stake in your property so that if they foreclose on you for whatever reason, you’ve lost a portion of your equity, therefore de-inticing you to stuff up the mortgage?
Brizza. That is correct, the bank has to cover themselves if you don’t pay. They can foreclose on you and sell the property, but there is a chance that they won’t be able to get what you paid for it and aslo costs involved, so they give themselves a margin of around 20%. They are willing to take a lower margin, if you pay their insurance for this (lenders mortgage insurance). You can now actually borrow 100% of the price if you are willing to pay 2.6% of the purchase price in mortgage insurance. Then if you don’t pay, the bank can forcelose and anyshort fall is covered by the mortgage insurance. (They will then come after the borrower to try and recover their costs).
Terryw
[email protected]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
Basically yep.
If you’ve got no other equity or cash as security, then putting up 5% shows the bank you plan to stick around and not lose your capital contribution thru payment defaults and a fire-sale of you property for hem to get out.
If you were set up in the right kind of loan (eg partly line of credit) you could do minor improvements to the property eg paint job, new kit kitchen etc, get it revalued at say $115K, then apply to have your loan increased to 90% of that ($103.5K) & providing you have income to service you can pull out the extra $13.5K and hey presto you have the $10K + costs for the next purchase & loan.
Also, try not to stick with the same bank either as often other banks will take your current commitment at face value, eg $800/month, whereas within the one bank they are obliged to add a safety margin of 1-2% onto actual interest rate and work out commitment based on that eg $800/month treated as $900/mth commitment with margin added, decreasing you borrowing power.
Make sense?
Mel
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