Hi ,
Need some clarity on using equity in my IP to purchase family home.
To give you a bit of background, my IP is valued at $475K and currently owes $325K with the rental payments covering the payments on the interest only loan
My wife and myself are looking at purchasing our first home together as a PPOR. Our combined income after tax is 8000K per month, and currently have $30K saved
I've tried to research online on how equity works, but still a unclear… Can you help clarify for us?
For example, say we are looking at purchasing a 680K PPOR,
1. My current understanding is that I currently have $150K in equity.
2. The bank would lend us 80% of the value of the property which would equal 544K. So using the equity I have in my IP $150K + 6K from savings) it would cover the costs the total cost to purchase the property (680+20K give or take)
3. Meaning I would have a total loan amount of 544K-24K (6K used up from the 30K savings) = $520K
Is this accurate on how equity works? So if we are able to service the loan (520K) the banks will approve?
All information will be much appreciated
Thanks,
-J
Hi J
Welcome aboard.
In answer to your questions.
1. You have $150k of "actual" equity. However, the bank won't let you access all of that. They will let you either access up to 80% of the properties value ($55k) or possibly up to 90% ($102k) depending on the lender.
2. No. You don't have as much "useable" equity than you thought. Taking the example above, if the lender allows you to go up to 90% of your properties value ($102k) then you would use these funds to cover the deposit/purchase costs on your next PPOR and then you would borrow the rest. Let's say $34k (which is 5% of $680k) gets swallowed up in purchase costs such as stamp duty, legal fees, etc – this will leave you with about $68k to use as a deposit which is 10% of the purchase price.
3. You would have three loans set up:
Current PPOR
Loan 1: Current PPOR loan of $325k
Loan 2: Equity release of $102k
New PPOR
Loan 3: IP loan of $612k
I haven't run an assessment on your servicing – but this is how the structure looks.
Structure this correctly from the start. The info above is very general and there's lots to be considered here and chances are, if you deal directly with a bank or a mediocre broker, you'll end up with a mess of a structure.
Cheers
Jamie
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]
Thanks Jamie
So depending on the lender , and should it be 90% – Would I need to be able to service 714K? (612 +102 ) ?
Thanks Shahin,
So the only way to keep em separate is if I dont use the equity in my IP ?
I would have to come up with an 113K in savings in order to meet the 80% ratio..
Hi Jay,
At an 80% lend you have $55,000 in equity and at a 90% lend you have $102,500 in equity plus your savings.
Keep the securities and the facilities separate.
If you are purchasing a PPOR for $680k and you want to aviod LMI (and you would want to as its not tax deductible) then you will require at least $163k (depending on which State you are in). This will ensure that your LVR is 80%.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
You can still use the equity in the IP and get the securities separate. So your IP will have one loan for the IP itself with account number 'abc' in the amount of $325k and a second account number 'xyz' in the amount of $102,500. The $102,500 will be used as a deposit for the PPOR purchase. Also if you are going to go LMI (which you will need to) do it on the IP loan as you will up for less LMI than if you did it on the PPOR loan.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
No – you can keep them separate with the structure I outlined above.
Yes – depending on the lender, a 90% equity release on your current property might be possible.
Cheers
Jamie
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 doublejy
Sounds to me like you are getting a wee confused.
Loan structuring is not easy and expensive when you get it wrong.
Why not shoot Jamie a quick email and get him to work the numbers for you.
Having a good Broker on side can not only save you $ 000 will also give you a sounding board for your investment journey
going forward.
Won't cost anything and you will get professional advice which is more than you will get from your Bank or Banker.
That and he is a top bloke too boot.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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