G'day…
Just trying to figure out equity value again….stick with me on this one….I have 2 investment properties worth $770,000 with a mortgage of 700,000 recently purchased. Does that mean if for example I bought a 70,000 house I would continue with current repyaments to bank because my mortgage wouldnt change but my value to the bank would change? Or would my mortgage increase to 770,000? confused living on a remote island in the NT and being blown off by every financial consultant i speak to. Can someone please help…cheers
tuggerwaughYour mortgage would increase to $770,000 and so would your repayments.
Simple answer when unlocking equity;
If your looking at purchasing another IP worth $70,000 then you'd be wanting to draw down on your equity (setting up another loan/line of credit) and therefore your repayments to the bank would increase accordingly..Lets just say its an interest only loan and the interest rate is 7.57% on 70,000 then that would be an extra $5,299 per year or $101.90 per week.
But in all honesty I think you'll have to wait for your properties to increase more in value before you can unlock $70,000.
You would need to speak to a bank or a broker about the costs involved (specificaly what the LMI costs would be) but I'd say it would be a costly exercise trying to unlock 95% or more (if possible) of your current equity, even at 90% the lenders mortgage insurance would still chew up alot. This to me wouldn't make your current exercise worth it.
p.s. I'm not a financial planner/advisor nor a broker so I hope I haven't stepped on any toes!
gday joelc…
Nah thats good info. Just getting a bit confused as to how to unlock that equity in the properties but maybe holding off for a few years to increase capital growth would be a good idea. Cheers
tuggerwaugh
gday joelc…
Nah thats good info. Just getting a bit confused as to how to unlock that equity in the properties but maybe holding off for a few years to increase capital growth would be a good idea. Cheers
tuggerwaugh
It would depend how you structure it.
If you cross collateralise your existing properties, then your current loan would not increase. You would use these as additional security for the next one. So the next one you would have a loan that may be 105% of the value of the new property. $70,000 of this is supported by the exisitng properties.
Another way, more preferable generally, is to borrow this $70,000 and to use the cash for the new property. So your exixisting loan would stay the same, but you would have another split for $70,000. Since you have used this for investment purposes the interest on this split should be deductible.
Note, this would be borrowing 100% of your existing properties and would be hard to do, you may need to wait for a bit more equity to build up.
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
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