How do you work out how much you can borrow from the bank using their 80% rule. (that they will lend you up to 80% of the loans).
i.e. I have two houses.
1. House Value $250,000 with $120,000 mortgage, and
2. House Value $80,000 with $75,000 mortgage.How much will the bank lend me?
Many thanks
David
It is calculated as 80% of value less current loans.
eg in your example, total value is $330,000. 80% of this is $264,000. However, your current loans are $195,000, so you should be able to borrow another $69,000 ($264,000 – $195,000).
BTW, You will also still have to demonstrate serviceability to qualify.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
hi david
futher to what terryn has said you have 69,000 available. This can be used to borrow another 276,000 so you can buy properties up to 345,000. once again subject to servicability. this is why you shouldn’t buy negative geared properties it stuffs up your servicability (ie ability to pay off the loan) my taxable income is only 20,000 (not my true income) yet i am able to service loans of over 1,000,000 because i have cash positive properties. hope this helps
westanhi all
i thought the banks dont take 100% rent into account ,so are you saying if the rent can cover loan amount ,land rates, insurance ,and you put in ,say $1 they will give you the loan ?different lenders will take a different % of the rental. Each of the lenders have their own serviceabilility criteria. What the others have said is absolutely correct, they will take into account what the equity level is, but also your ability to service the debts. It is a minefeild but not too difficult, Strike up a good relationship with a broker and they will tell you who will accept your loan and who wont.
Good Luck
Cheers Bobbie [
]If your gross rental yield is high enough then the property might qualify by itself.
Two points:
1. Most lenders only take between 75% to 90% (one at 100%) of the gross rental income.
2. All lenders will calculate serviceability based on P&I repayments at a benchmark rate (a benchmark rate is the current interest rate plus a margin).Here is an example of a property that costs $100,000 @ a rental yield of 9.5% (financed at 80%)…
Banks assessment
Rental income @ 80% = $7,600
P&I repayments @ 8% = $7,044
Surplus income = $556 (therefore this scenario does not drain your borrowing capacity)This assessment assumes that the borrower earns other income that covers its personal expenses and any other financial commitments.
Don’t get me wrong… the bank will look for other income (because they don’t want borrowers to be 100% reliant on rental income).
Conclusion
Therefore, theoretically a borrower could purchase an unlimited number of properties (based on the assumptions above) so long as they had unlimited deposits.
For example, I have a client that owns 19 properties and earn minimal income. But since her average rental yield is approx. 11% her investment properties have actually increased her borrowing capacity.
I hope this makes it clearer.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auhi guys,this is my numbers
can you tell me if thats righthouse values1,400,000
_80%=280,000
1,400,000-280,000=1,120,000
loans out on all ips
514,000
1,120,000-514,000=606,000
so 606,000 i can borrow
but have no more money to service the loans if i borrow .
what do you think,, should i get a cash bond and keep going ?
or am i dreaming []Yes you are correct – $606,000.
This is how I work it out…
$1.4 m * 80% – existing mortgages = what you can borrow.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auActually, just thinking…
You can borrow at 65% LVR and not have to provide any financial information – no income, assets, or liabilities (this is called an asset lend). Interest rate is 7.25%… but at least it allows you access to your equity.
Therefore…
$1.4 m * 65% – $514,000 = $396,000.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHi trying,
$606,000 is what you can borrow based on your current asset base. However, if you are aquiring new assets then I would assume you could borrow a lot more. My calculations (subject to servicability) would be as follows;
The $606,000 you could borrow as a ‘deposit’ towards further assets. Therefor allowing you to purchase roughly $3,000,000 worth of property at 80%LVR if the returns stack up.Someone correct me if I’m wrong.
“All the world’s a stage, and you choose the role you want to play on that stage” William ShakespearBring on the clowns
hi guys thanks for the yes i did it right [
]
sounds like i can still go further
but my problem is servising the loan ,in my eyes i want to use this equity to upgrade my ppor from 600k to 1m or so but ,i dont want to sell my old ppor so payments would come alot ,so i was thinking of cash bonds ,but maybe some one has got other ideas ,any way if i can,nt get a new ppor for me i will keep buying ips but they will have to be good cash flow .
my accountant said i have NO MONEY LEFT to service more loans ,that really gets under my skin when i know how much equity i have ,and i dont want to stop now []Bring on the clowns?
Trying
You could use a cashbond to help you service the loan, but this is just like borrowing to pay the interest repayments. It is not nessecarily a bad idea, as long as your property is growing faster than you are using the equity.
Really there is only one way to service your loan, and that is to earn more income. This can come from a wage or from rent from other cashflow +ve properties etc.
And the average bank would not lend you money based soley on the rent if you had no other income. You would be what they term too rental reliant.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
thanks for that [
]i worked out this
say to be on the safe side i have 500k in equity to spend
get a loc 500k and use 250k for the cash bond
get 5*200k ips
put 20% down borrow 160k on each ip
20%=40k+ 10k closing cost= 50k
5*50k now i have used up my loc of 250k+ 250k for the cash bond .to pay i/o loc say 6% =30kpa
20k left to help service loan ,after rents
meanwhile 5*200k ips say 5%growth pa = 50k
I dont know the % on cash bonds ,they give you correct me please ,if i am wrong .4%pa = 50k over 5 years.so at the end of 5 years cg on 5 ips is 250k
i pay out 150k for my loc ,so i am loosing , over 5 years .so i have to hope i get a better growth than 5%pa ,i think thats why steve says to buy good cgains ips []meanwhile remember when i put down 20% at the start that means instant euqity [
]is that right
please pick at this,and tell me i am wrong some how . now i think i am more confused than ever
better go back to the sums []Trying
What you have written looks confusing.
If you have a $500,000 LOC and use $250,000 for a cashbond and another $250,000 (=$50,000 x 5) for deposits, then you should have none left over. So I don’t understand this:
“…to pay i/o loc say 6% =30kpa
20k left to help service loan ,after rents…”I think the % on cashbonds is around 4% pa over 5 years.
If you put 20% down, then you would have 20% equity at the beginning (growing with time).
Instead of getting a cashbond, why not just go for a low doc loan.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
if i get a cash bond i would receive 4% back ,is that right
if i get a loc i would have to pay 6%
i thought, with the cash bond if you use the money for investment the tax will allow you the differants in int,that you pay for your loc, so you get 4% but you pay loc 6% so you can claim the 2% diff
[?]i dont know im getting very confused my self to much on the pc im going la laHi Trying,
I might seem overly simplistic here, but why not buy properties that will increase your serviceability rather than decrease it[?]
I’ve just mentioned it in another post, but here goes again, this time I’ll be more specific.
Ive recently bought(well they’re under contract) 2 positive cash flow IPs that have seen nearly 50% growth in the 8 weeks since I signed the contracts.
Specfics:
* 2 Queenslanders divided into 2 flats each.
* Purchase price 73K & 86K respectively (the cheaper one needs 10K spent on it)
* Situated in a major rural centre
* Value estimated by agent yesterday 115 -125K [8D] each(after spending money on cheaper IP)
* Return 210/week each (ie 110 & 100 per flat)These properties will increase our income thus increasing our serviceability, allowing us to buy more IPs, and use up our equity as deposits.
My point is not to brag but to show the deals exist, and that the capital gains are definately there! I personally never expected much more than growth equal to CPI on either of these IPs. How good it is to be wrong![
]Maybe I’m thinking too simply, and I’m the one missing the point![
] I sure hope not!Cheers
Scott S
“Aim for the stars and you’ll shoot the top of the telegraph pole. Aim for the top of the telegraph pole and you’ll shoot yourself in the foot!”
-anonTrying
Yes, I beleive Steve Navra has applied for a tax ruling so that the ‘loss’ is claimable. But it is still a loss, and then there is Navra’s fee as well. I am not sure what it is, but have heard around 3% of the bond! Maybe a Low doc is easier and cheaper?
Scott
You property sounds excellent. I agree, if you can find these sorts, it solves a lot of problems.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
thanks scott,terry [
]
Yes that sounds good ,
i was looking at more expensive ips ,thats why i was having trouble servicing them {my thought }
but ,i think cheaper ones are more realistic ,thanks for bringing me back down to earth guys [] i have,nt hit the big time {yet}[][]
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] I sure hope not!The topic ‘Banks 80% rule.’ is closed to new replies.
