All Topics / Help Needed! / help with using equity

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  • Profile photo of lyndon_glyndon_g
    Member
    @lyndon_g
    Join Date: 2006
    Post Count: 58
    July 26, 2007 - 12:16 pm

    Hi all,

    i have been discovering/trying to learn new techniques of investing, and have some questions regarding the following situation:-

    I have read that with 200k of equity, you can borrow against that equity to buy another property, so long as u do not exceed 80% LVR. ( i understand this LVR thing at a basic level! :) )

    I have also read that investors borrow more than the purchase price of the second property, and use those additional funds to pay the shortfall of the interest repayments.

    I was just wondering if some of you veterans (or experienced investors if you like :P) can give some tips regarding this type of investing?

    I currently have 295k loan with 200k approx in equity. My income has stalled temporarily as i have just taken a new 100% commission job, which takes around 6 months to pay commissions. I want to borrow against my equity and re-invest ASAP , and possibly borrow more than required as mentioned above. I just want to make sure that i have covered all angles etc etc.

    Thank you in advance for your response!

    Cheers
    Lyndon

    Profile photo of ducksterduckster
    Participant
    @duckster
    Join Date: 2004
    Post Count: 1,674
    July 29, 2007 - 3:10 am

    The 80% refers to your Loan to Value Ratio so you need to know how much your property is valued at from the valuer the bank will use and then you need to know the outstanding loan amount.
    Say value is $500,000 for an example. The 80% LVR figure is $400,000 so if your loan was $295,000 then you could borrow $105,000. through a line of credit type loan.
    This $105,000 could be used as a deposit for the next loan.
    Problem is loan now is $400,000 plus next loan you are applying for.
    What are the total repayments going to be?
     is the question you need to find out and will you be able to afford it.

    Also lenders do not like no record of income so you may need to look at a low doc loan.
    Borrowing over 100% is usually for new home buyers rather than investors of second properties.
    Although you may be able to borrow more than you need for a deposit from the line of credit on the first house.

    Sounds like you may be in a commission job as a mortgage broker, where  you are entirely dependant on your aggregator not dropping you if your sales are below their sales targets.
    If this is the situation you may be wise to wait till your trail commissions can pay for this investment's repayment costs.

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