Calculating equity loan?

Hi Dave

The amount of equity you have has little bearing on the amount you can borrow unless it is under a lodoc style loan.

Banks work out the amount they will lend you under a variety of serviceability calculations working out your income and expenditure.

In a nutshell they will take your net monthly income add to this the expected rent at say 80% of the Gross received figure and subtract your monthly mortgage committments (usually worked out at say an interest rate of 1.5% higher than the standard variable rate) a percentage of your credit card limit and end up with a monthly surplus.

They would then divide this figure by the monthly factor of Principal & interest for the interest rate + say 1.5% (Maybe $8.34 / 000) and this would give you a total number of thousands you can borrow.

This rather crude example does not take into consideration any negative gearing addback or other factors but will at least give you a guide.

After you have worked out the amount to borrow you then need to ensure that your Broker structures the loan in such a manner to ensure that the securities are not cross collateralised and are set up to maximise your tax deductions and to provide you with maximum flexibility.

Dave

Assume you have a surplus of say $2000 / month and you divide it by $8.34 it gives you a borrowing amount of around $240,000

Sorry in the above calculation i forgot to deduct from your expenses your living allowance which is taken usually from the Henderson Povery scale and is a anticpated expenditure scale the Banks use. 2 Adults and say 1 Dependant might mean they expect you to spend circa $1950 / month on General Living.

Your Broker will have all these figures to hand as there are many variables.

Let us now if you need any more information.

Raymond, i think your 1% is slightly optimistic.

4 of the 5 majors use minimum 1.5% above SVR and all 5 use a different HPS figure.

1 of them uses the actual repayment rate if the loan is fixed whilst the others still use the variable rate.

The percentage liability of your credit card limit varies slightly with each of them with 2 using a nil monthly amount of you repay the debt each month and can evidence this over a 3 month period.

1 adds on a percentage of the monthly repayment as a further buffer and we havent even got onto the percentage of rental income, FAS or other considerations.

All of this assumes the client is PAYG and not S/E as that is a further pandoras box.

Maybe not confusing but varies considerably from lender to lender.

Yes as i say the 5 majors vary including your current owner.