Hi All,
Can someone please advise me of the correct calculation that is used for a LOC (Equity Loan).
I have always thought that a LOC amount was calculated as follows.
PPOR $600,000 – Outstanding Loan $300,000 = Equity $300,000
Equity Loan = 80% of Equity being $240,000
When I applied to a Bank today for a LOC they worked it out as….
Equity Loan is 80% of PPOR $600,000 = $480,000 – Outstanding Loan $300,000 = $180,000.
So what formulae is correct as I think I am being duped by the Banks.
Having said that then the real usable equity is only 60%
Thanks
MelMel,
Whether it is a LOC or term loan, the loan to value ratio (LVR) is the total loan amount divided by the property value.
A $480k loan on a $600k property is an 80% LVR.It is the overall debt total on the security property that the lender holds.
If you need to access more funds, simply borrow to a higher LVR. Depending on use and on lender, you can refinance to 90% inclusive of lenders mortgage insurance if you can show you can service the loan.Take care as most lenders and mortgage insurers are wanting chapter and verse on what the additional funds will be used for.Be prepared to provide a detailed explanation.
Good luck
GregYour second scenario is correct.
If your property is $600,000 and the bank allows 80% lend; you have a 'shaded value' or 'bank value' of $480,000. You can take your 480k in a wide range of products e.g. loan or line of credit (or a combination).
As Greg said: – you might need to go a 90%er.
If you did go with the first scenario you would have:
existing loan 300k, new loan 240k; TOTAL 540k (90% LVR).
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