Just wondering % of your property you must own/have paid off before a lender will consider allowing you to use the equity for further uses?
Normally maximum refinance would be 90% so in that case minimum 10% paid off or altenatively the property would have need to have increased in value to allow a maximum of 90% of new valuation.
Richard Taylor | Australia's leading private lender
Okay… a couple of thoughts here about equity.
First… how is equity created?
You can create equity by:
1. You repay debt; and / or .
2. Values go upIf you get both then, as you'd expect, your equity will increase faster.
Second… how can you tap into equity?
In Australia, you can tap into your equity without triggering a CGT event. This is seen attractive as you can access (some of) your profit without paying tax on any capital appreciation.
That said, as with any borrowings, there is an up-side and a down-side. The up-side is extra leveraging, the down-side is increased credit risk.
How much equity should you access?
There is no hard and fast rule, except to say you shouldn't finance more than you can comfortably afford to repay.
With that in mind, even if a lender was happy to provide you with a 90%LVR, it may not be in your best interest to access / spend all of it.
In fact, in my opinion, remaining below 80% is more sustainable.
Finally, think carefully about what you use your refinaced equity to buy. If it is lifestyle related (as opposed to investment related) then the interest will not be tax deductible.
All the best,
– Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
I am currently talking to my bank who wont let me access the equity in my house unless we have 80% LVR. We are sitting at 82%… very frustrating as a great investment property passed us by on the weekend.
We are currently re assessing our options as we would like to get started!Steve and Richard i would love to know your thoughts on my question: Should i use up all of my equity for my first IP or not?
Thankyou for the helpful replies! Happy to hear that a "lot" of equity is not needed. I appreciate and agree with your opinions that although this is the case I still does not mean you should use it…and even then, how you should use it.
I assume a professional property valuation is the first thing to do if someone plans on approaching a lender to borrow more funds, as this will allow them to consider the up to date LVR?
Normally maximum refinance would be 90% so in that case minimum 10% paid off or altenatively the property would have need to have increased in value to allow a maximum of 90% of new valuation.
Richard Taylor | Australia's leading private lender
Frugal one
Hate to say that wont do you much good as each lender has it own panel of valuers and unlikely they will go outside this.
By all means find out who is on your lenders panel and try and arrange a valuation on the property and then get your Broker to use the same valuer when the Bank do their own valuation.
Richard Taylor | Australia's leading private lender
Hi FrugalOne,
as Richard pointed out, the bank will usually do their own valuation, so you paying for one won't really help you. What you could do is to get a few appraisals from RE agents, take the average, take 10% off (because this will be a market appraisal, and will be about 10% higher than the bank val) and see if you still have an LVR below 90%. If so, then you can approach the bank and say you would like to access some of your unused equity. They will then do a bank valuation and you can take it from there.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
