I was told that banks only use equity in your property to fund another purchase if the loan is with the same bank. Eg this friend had a loan on a unit through ANZ, and had a small amount of equity in the property (estimated value – loan amount). They wanted to purchase a second property with another lender, but was told they could not use the equity in their current property as it was financed with another bank. Is this complete rubbish? Or does it have to do with the Bank doing their own valuations, so that if they are happy with their own valuation, they will provide more finance based on their own equity assumptions..
My personal situation is i have a loan with a big four bank, and about to purchase a 2nd IP and want to know whether i have to stick with the same bank for a new loan, using equity in my current property as valued by them..
What you are missing is the collateral
You have one property secured as first mortgage and then you go to another bank for another loan then you are trying to use a property secured by another bank as collateral. (This is known as a second mortgage and banks do not like being second securer over assets.However
If you went to bank one and said I have heaps of equity can I set up a line of credit loan to borrow $50,000 the bank will most likely lend to 80% LVR.
Then go to bank two and tell them you will put $50,000 towards a deposit and stamp duty you might have better luck at securing the second loan.
Rough formula
Say house one had a value of 400,000 but you owed 200,000
LOC = Value * 80% – Loan
LOC = 400,000 * .80 – 200,000
LOC = 320,000 – 200,000
LOC = 120,000
However you have to make repayments on this line of credit loan once you pull money out of it.
So service ability is also looked at when bank assesses borrowing capacity.Do a search on the subject of line of credit in this forum as there are many postings on this subject.
chrisb123 wrote:I was told that banks only use equity in your property to fund another purchase if the loan is with the same bank. Eg this friend had a loan on a unit through ANZ, and had a small amount of equity in the property (estimated value – loan amount). They wanted to purchase a second property with another lender, but was told they could not use the equity in their current property as it was financed with another bank. Is this complete rubbish? Or does it have to do with the Bank doing their own valuations, so that if they are happy with their own valuation, they will provide more finance based on their own equity assumptions..My personal situation is i have a loan with a big four bank, and about to purchase a 2nd IP and want to know whether i have to stick with the same bank for a new loan, using equity in my current property as valued by them..
This is generally true. The second bank would have to take a second mortgage behind the first bank and they don't like doing this.
A better way to do it would be to set up another loan on the first property with the first bank- ideally a separate loan and not just an increase. This is then used a deposit and costs for the 2nd property and the remainder borrowed with another bank. That way the properties are not cross securitised too.
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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