Hi There,
Can someone please explain to me (preferably someone who has done this before), how does it work when we use the equity in an existing property, to use this as a deposit to purchase another property. How do bank managers work this out? I can understand the bank could lend us the deposit amount, but how about the remaining mortgage? its not enough to purchase a property with a deposit, we also need the loan amount. Does the bank usually lend us the deposit and loan amount from purely using the equity in an existing property?. Take for example a unit that was bought for $200,000 and we still have $100,000 to pay it off. How does this concept work if we use this property to purchase another?.
Thanks,
JD
What happens is the deposit (usually 20%) and any costs (like stamp duty etc totalling about 4% of purchase price) are borrowed using the existing security. The remaining 80% would be borrowed against the property you intend to buy. This structure enables you to avoid mortgage insurance.
An example:
Property 1 – Existing Property
$100,000 Loan
$200,000 Value
$60,000 Useable equity avoiding mortgage insurance
$36,000 Required to purchase new property (24%)Property 2 – New Property
$120,000 Loan
$150,000 ValueThe result is your existing loan of $100,000 still remains and you have new borrowings of $156,000 spread across two security properties.
Any good mortgage adviser could run you through this very easily.
Robert Bou-Hamdan
Mortgage Adviser
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