Hi, I’ve read some previous posts on accessing equity but still have trouble understanding how it would actually work. The person at the bank was not explaining it too well either. Help please?
I have a long term investment property interstate. The equity in this property is about $100,000.
I’d like to buy a PPOR (I currently rent). The bank has approved me to borrow $350,000 – and the maximum value of the new property can only be $350,000.
I’m not sure if the ‘borrowing’ figure (of $350K) includes the equity I could use from the IP?
E.g. Say I want to buy another property that's $350,000. I want the second mortgage to be maximum of $210,000 so I know I can meet repayments on the current interest rate. Does this mean $100,000 is drawn from the equity, and the bank lends me the remaining $110,000 and I then have to find then extra $140,000 elsewhere?
Thanks for your help.
Hi there
Welcome aboard.
There's a difference between useable equity (what the bank will let you access) and actual equity.
For instance, just say you owned a property worth $100k and you had a $50k loan and the bank your with will let you access equity up to 80% of the properties value.
In this instance, you have $50k in actual equity ($100k minus $50k) and $30k in useable equity (80% of $100k = $80k. You then take the $80k and minus the current loan of $50k and you're left with $30k that you can access).
How much is your current IP worth and how much is the loan against it?
How much are you wanting to spend on the next property?
It doesn't sound like your bank is being overly helpful. They will no doubt also try to cross collaterise your IP with your next purchase as well.
Cheers
Jamie
the bank let you access equity up to 80% of its value
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi,
Equity is the difference between a property's value and the debt owing on it.
Equity can be created by two factors:
1. Increase in value (with debt not rising by more); and / or
2. A decrease in debt (without property values falling by more)
Subject to you being able to prove you can afford the loan, most lenders will be willing to allow you to access up to 80% of any available equity.
In your case though, it seems you have been 'qualified' for 100% of the purchase price. This means that you wouldn't need to tap any equity to pay for the purchase price, but you might to pay for the related purchase costs (stamp duty, etc). Otherwise you will need to pay those costs using cash.
The question that is not clear from your post is whether you qualify for the 100% loan based on your current income, or whether the lender wants the additional security of the investment property too.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Kesiera,
We would need a bit more information but here is a response with a series of assumptions.
If the property you are purchasing is in NSW and the value of the property is $350k then you would need to come up with at least $365k in funds (if your LVR is 80% or under) or aprox $370k (if your LVR is 90%).
If you have $100 in equity against another property (say $100k) then you can use this against another IP purchase. However, you need to structure the loans correctly and not contaminate the borrowings.
Now back to your question – if you have $100k in equity which you can draw from then that would leave $265k in funds that you will need to come up with. This is good because you will also avoid LMI. This would also mean that you would need to borrow approx $265k with the lender.
The other important question is if you are wanting to use this PPOR as an IP in the future. If so then you again need to strucutre the loan correctly. Jump onto an IO loan and set up an offset facility linked to your loan.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
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