Hi Experts,
I have few basic question about equity.
Q – 1 : First of all, how much equity you can withdraw (or borrow) on your property ?
Lets say a property I have has current market value of 550,000.00 and I am owing 350,000.00 on that property.
From internet I found different ways people calculate equity.
1. 80% of the property value – total owing on the property = equity you can withdraw
based on that a equity I can withdorw = (550,000.00 x 0.80) – 350,000.00 = 90,000.002. (property value – total owing) x 0.80 = equity you can withdraw
based on this a equity i can withdraw = (550,000.00 – 350,000.00) x 0.80 = 160,000.00There is a huge difference in both calcuation, so can someone please tell me which method banks uses ?
Q – 2 : case vs equity
As per my understanding, you pay the interest on the equity you withdraw from the property, correct me if i am wrong …
my friend is doing lots of extra repayment on his property thinking that he will withdraw an equity from that later on. But I cant see the benifit of doing extra repayment to withdraw an equity because you will be paying an interest of your own money which you repay extra for your property. is there any benifit in this way … if i m missing anything please explain me …
if person is paying extra repayment in property and withdraw equity on that property, he will paying an interest on his own money…
I can see a benifit of withdraw equity if property value increase and you draw equity based on new property value, but cant see any befinit to do extra repayment for withdrawing an equity late on.
Hi Microchip
With question 1. Your answer is option 1.
With question 2. I'm a tad confused about what's actually being asked.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie,
Thanks for your response.
Sorry for confusion. And also sorry for typo in my previous post. I meant Cash not Case …
What I am trying to ask is, If I have extra money, should I may a payment in your property and then withdraw equity from it for next investment or keep it cash and use it for next investment.
Lets say I have a 50000.00 in my account. And for example my property value is 550000.00 and debt on property is 350000.00.
Equity without lump sum payment of 50000.00 in mortgage loan = (550,000.00 x 0.80) – 350,000.00 = 90,000.00
I have two options.
Opt 1 : Pay 50000.00 to the loan account and withdraw an equity from it.
Total Equity I can Withdraw = (550,000.00 x 0.80) – 350,000.00 – 50000.00 = 140,000.00
In this case I will get extra 50000.00 equity but I will be paying interest on that extra 50000.00 I withdrawn from the equity. That means I am paying an interest for my own money.
Opt 2 : Use 50000.00 for next investment without paying in mortage loan
Total money for investment = Equity without lump sum payment + 50000.00 = 90,000.00 + 50000.00 = 140000.00
In this case I will get same money for my next investment but I will be paying interest on the equity I have withdrawn = 90000.00 not my 50000.00 …
Can you tell me my understanding is correct about option 1 and if it is correct, that definitely option 2 is better option … m i right ?? please correct me if anything wrong there …
Equity and loans are different. You are confusing the 2 i think
If you take money out of a loan or borrow more money then you pay interest. But a way around this is to only take the money when you need it. To do this you can set up a loan now, such as a LOC, and withdraw the money later when it is needed. You would then only pay interest from the date of withdrawal.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw, I think you are right that I am confused between Equity and Loan.
I understand if you withdraw more loan you have to pay the Interest on it and if you set up LOC you pay the interest since you withdraw the fund. But what if I withdraw the equity from my IP, do I have to pay the interest ??
sounds like you are still confused!
You can't really withdraw equity – you can only use equity to borrow.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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