Hey guys I been reading about people accessing their equity in there current properties to purchase 2nd Properties. I want to understand how it works if your current home is 300,000 and you have remaining 240,000 to pay off with 40,000 equity to purchase the 2nd property what happens to your current loan does it simply go back to 300,000 again or how does it work???
Hiya
Most lenders will let you take your borrowings up to 80% of the properties value when releasing equity.
Some will let you go up to 90%
If we take the 80% scenario for instance – we use 80% the value of your property ($300k) which is $240k and subtract the current loan ($240k) to work out how much equity you can access – which in this example would be $0.
If you borrowed up to 90% – we use 90% the value of your property ($300k) which is $270k and subtract the current loan ($240k) to work out how much equity you can access – which in this example would be $30k
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]
You need to realise that actual equity and usable equity are two different things when it comes to borrowing, and Jamie basically covered that part of the equation above.
To answer the other part of your question Newbie, you should really access the equity as a separate loan split under the same security, especially where IP's are concerned. That way tax deductibility is maximised and it makes it easy for your accountant to work out what those figures are come tax time.
So using Jamie's example above for 90% maximum loan the structure would look something like this:
Property Value – $300K
Loan 1 – $240K (existing loan)
Loan 2 – $30K (new equity loan split)
Cheers
Tom
For loan 2, I generally like to use Home Equity Lines of Credit (HELOC) which acts as a separate loan, and whihc you can use for deposits for your next IPs.
Hi Tom,
“Same Security” meaning the PPOR new Loan 2, is only secured by the PPOR & not secured by the new IP.
Thus not cross secured, is this correct mate?
Regards.
Hi Cards
Yes you have it in one.
Keep the loans separate and give yourself flexibility and choice.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Cheers.
So just to elaborate more on what has been said so far. When you draw on the equity (using the example above) does your loan increase back up to 270k when you use the 30k equity?
If it’s a topup of the existing loan it would increase to 270k. However in the case of a PPOR, you would generally setup a separate equity access with a balance of 30k.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
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