Borrowing against equity in home

Viewing 5 posts - 1 through 5 (of 5 total)

cedartree
Participant
@cedartree
Join Date: 2009
Post Count: 1
June 25, 2009 - 10:35 am
I would like to borrow against the equity in my PPOR to purchase an investment property.
My PPOR is worth $550,000
The current loan on it is $316,000
The interest rate is 7.69% (fixed before the GEC)
Minimum repayment is $2300 per month
My partner and my combined after tax income is $5790 per month.
I would like to buy an investment property for $300,000 (or less, but I can’t see anything for less in Melbourne). Can I borrow against the equity in my PPOR? If so, how does it work?
Can I use 80% of the equity i.e. $187K as the deposit on the investment property so that:
PPOR $550,000
IP $300,000
TOTAL $830,000
PPOR loan $316,000
IP loan $113,000 ($300,000 less $187,000)
TOTAL $429,000
EQUITY $401,000
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
June 25, 2009 - 12:17 pm
I would set it up like this:
PPOR value = $550,000
80% LVR = $440,000
Less existing loan of $316,000
= LOC of $124,000
IP value = $300,000
80% loan = $240,0000
So you would have loans like this:
1. PPOR of $440,000 = this is secured against your home
2. LOC of $124,000 = this is secured against your home
3. IP loan of $240,000 = this is secured against your IP only
This way your loans are separate. Not cross collateralised. 3rd loan can be with a separate lender.
LOC may be used for deposit and costs such as stamp duty, legals etc. The interest should be deductible. You can also use this for all IP expenses, maybe even interest or interest shortfall – check with your accountant.
IP loan should be interest only.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email Me
Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Richard Taylor
Participant
@qlds007
Join Date: 2003
Post Count: 12,024
June 25, 2009 - 12:48 pm
Agree with Terry totally but to add one more consideration in the absence of being able to utilise a 100% offset account on your fixed rate loan i would make sure you attach one to the IO investment loan.
You can always close it down once the PPOR mortgage becomes variable and open a new one linked to the non deductible debt.
Richard Taylor | Australia's leading private lender
Sonti
Member
@sonti
Join Date: 2009
Post Count: 7
June 26, 2009 - 5:33 am
There are properties in Melbourne for less than $300,000
Email me on [email protected] and I can send you the details.
Cheers
obie1
Member
@obie1
Join Date: 2009
Post Count: 11
June 28, 2009 - 3:59 am
Terryw wrote:
So you would have loans like this:
1. PPOR of $440,000 = this is secured against your home
2. LOC of $124,000 = this is secured against your home
3. IP loan of $240,000 = this is secured against your IP only
I think this should read…
So you would have loans like this:
1. PPOR of $316,000 = this is secured against your home
2. LOC of $124,000 = this is secured against your home
3. IP loan of $240,000 = this is secured against your IP only
…that is one way you could do it, another is to cross collateralise. Get an Interest only loan for your new IP for the total value + stamp duty + costs which will probably be around $315k. Your investment loan lender would get a second mortgage on your PPOR but I don't see that as an issue with the amount of equity you have in your PPOR. Your IP loan is tax deductable and you won't have to increase your PPOR loan at all. If you buy well you will have positive equity in the IP within a year or two.
This method has worked for me and as soon as you have 20% equity in the IP you can remove the second mortage on your PPOR. You could even borrow more then 105% and just park the extra in an offset account on your Investment loan in case of cash flow problems to cover any shortfall.
Hope that helps you…
OBIE…