Hi all, does anyone know how much you have to pay down on a home loan before you can use your equity? I have been told that it takes "a number of years" before you can do so. This of course is extremely vague and doesn't help in planning ahead for your next property. Would anyone here be able to give a minimum percentage for a lender to consider an equity loan?
It depends if there's been capital growth.
That would allow you to access equity sooner.
Assuming you have and don't want to go over an 80% loan. You can borrow (assuming servicability) up to 80%
eg if your house is worth $500K and you owe $350K you could borrow $50K. Because $400K is 80% of $500K.
That's a very simple example. Hope it helps.
Hi Firewater
Generally speaking, a lot of lenders will allow you to access equity up to 90% of your properties value.
So if you had a property worth $100k.
On that property, you had a loan of $60k.
Then the bank agrees to let you take your loan up to 90% of the properties value – which is $90k.
You have released $30k in equity ($90k minus $60k).
Taking it to 90% of the properties value will incur some mortgage insurance – keeping at 80% or lower won't.
When carrying out an equity release against a PPOR, you need to set it up as a separate, stand alone loan so you can distinguish your tax deductible (equity release) from non tax deductible (PPOR debt).
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 Catalyst, so you're saying that generally speaking, in order to access equity, one needs the following:
a) at least 30% of the loan for the PPQR needs to be paid up
b) based on this growth, one may be able to obtain an equity loan for about 80% LVR based on the new valuation.
Got it! Yes it does help. Thanks!
Hi Jamie, yes, that seems consistent, though you advise that the percentage to be paid down on your first loan should be about 40% based on your example. So what I'm hearing is a range between 30-40-% paying doown your initial loan…got it.
And thanks for the point on stand-alones. Yup, I would avoid cross-collateralization too.
Cheers!
Firewater
Hi Firewater
Nope – not advising that you pay down any sort of percentage.
That was just an illustration of how equity can be accessed.
What is your current loan amount?
What is the current value of your property?
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]
Whoops! Apologies Jamie! I didn't mean to imply that it was advice. I was just analysing the points raised, that's all.
Currently, I have around $260K loan on a $290k purchase price. As you can see, I haven't paid down much on it yet because its only been about a year since I bought the property. I believe the property value is now $320K.
The reason I posted this question is to give me an idea of when I should look into unlocking some equity. The way I can assess this is by having an idea of when would be a good time to do so, based on a combination of the percentage of loan paid-up as well as capital appreciation.
Thanks again for your comments. Cheers! –
Firewater
No worries at all.
Is your current property a PPOR or IP?
If an IP – do you own a PPOR? or do you intend to own one at some point?
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 Jamie, its my PPOR and its an apartment.
Well my plans are flexible. I could do either of the following and be completely over the moon at my growing property portfolio : )
a) Assuming I have to wait at least 4-5 years to unlock my equity, I would buy a house which I would then use as my PPOR. My current property would become the IP; or
b) If I can unlock my equity sooner, say in 1-2 years, I would probably buy another apartment as an IP.
Lend me your thoughts. Thank you! – Firewater
Hi Firewater,
There is no required timeframe for being able to use your equity. How quickly you can unlock it will depend on both how quickly you can pay down your loan and how quickly you see capital growth on your property.
If you are intending on turning your now PPOR into an investment later on down the track, it would be advisable set up an IO loan with an offset account on your now PPOR. Paying the excess into the offset account. Then when you buy your new PPOR just move the excess money from one offset account to the other. This will maximise your tax deductions but also assumes that you are disciplined with your money.
If you tell your intentions to your broker he should be able to guide you through it.
If not.. give Jamie a call.
Cheers,
Fire, why not gie Jamie a buzz and see if he can't order a valuation on your current property (assuming your current allows this) and then he could look at setting up the sub loan to 90% of the current market valuation.
There are a couple of private lenders who will look at 100% loans for investors with a blended portion of traditional and private funding. The blended portion comes at a higher rate and must be P & I but the demand from investors is incredible.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thank you for the tip N@than. I will definitely look into the IO loan set up and see if it is beneficial. Cheers! – Firewater
Thank you Richard. I like the idea of the sub-loan, it would be interesting to see if I can indeed look at the possibility of a 100% loan. Cheers – Firewater
Fire be surprised how many I have from investors this week alone all interested in the 100% loan product.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Yes, I'm sure there will be a lot of interest particularly with the rates staying as they are for now. : )
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