I have gone to the bank to access the equity in the property I currently have. The person I am dealing with is exceptionally pushy and is not happy that I only want the equity loan (in the form of an LOC) and wants to do the entire loan. I swear I saw a bit of steam come out of his ears when I mentioned my broker
. My problem with this is that his ideas of investing are vastly different to my own. He is lending me money to buy a house that I can move into so I can stop renting. My goals are different – I want to use the LOC to fund as many CF+ and reno projects as possible. To do this I will need a broker who is willing to work with me – not a box ticker.This guy is not taking no for an answer. I asked him how much money I could get with the equity and he has responded with the full amount that he is trying to get through. I'm not sure what to say to him without raising red flags. I know if he hears what I am planning to do he will think it is high risk.
On top of it all I don't quite understand what is happening. I'll lay it out here in hopes someone can help.
IP bought for 300K loan amount 280K valued (on rates notice) at 560K
My estimations say that I should be able to access 224K – is this subject to serviceability? If this were the figure I could get would it be best to get it in an offset account or a line of credit? What is the difference? All questions that should be answered by the bank guy but he is really hard to talk to. Would I then be paying repayments on 504K?
Get a broker to handle it for you… simple.
Hi Mosic,
Agree with Freckle – use the broker you referred to in your opening paragraph.
Quite frankly I don't know why you are trying to arrange this yourself as your questions about serviceability and offset/loc indicate you have so much to learn.
Based on a $560K val with $280K loan means you may be able to release a further
Calculation 560 x 80% = $448K – $280K (current loan) = $168K available to be released if I have read your opening post correctly.
All lending is based on security and serviceability.
The funds you are seeking with be available to you in a loc which is more similar to a loan than an offset account.
I am finding a big difference in the valuations across banks. It may be a good idea to get a few upfront vals to see exactly how much equity you can squeeze out. Also get your broker or banker to contest the val and milk every dollar that he or she can.
There are many banks that do upfront vals.
Regards
Shahin
TheFinanceShop | Elite Property Finance
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Just an update:
I was honest with the banker and told him I only wanted the LOC and was thinking a broker for a number of reasons (including accessing cheaper rates) and that if he would match the cheaper rate then I would stick with the bank. He came back to me with "we don't match rates". Makes it easy for me
Good point re the valuation. I probably won't do it though because of the current tenants. The place looks pretty ordinary
I generally wouldn't be doing what you are planning via a LOC and also his comment about not match rates is rubbish as once you start talking to the banks discharges team its a different story.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Shahin, do you suggest a stand alone loan with 100% offset instead? I have read some stuff on here about banks matching rates so knew what he said was rubbish, he is really shirty with me about the broker thing. I don't really care, I'm not bluffing at all – no skin off my nose to set up a loan with someone else!
He has even questioned my motives with regards to the equity money: "If your now doing the loan for $168k then what is the reason for the loan, what are the funds for if not to buy a property."
Douche.
Wow he does sound like a douche – either find another banker or a broker that (sorry to sound cheesy) will actually help you grow your portfolio.
Re your question – it depends on a few things and there are pros and cons for LOC vs a Standard VL but generally yes that's how I structure the loans.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
I would prefer a LOC initally so as to maintain deductibility. A standard loan will cause problems unless you can directly access money available in redraw.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Would a LOC and a stand alone loan have the same interest rate or would one be higher?
Joe, generally a LOC slighly higher.
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
As Terry mentioned LOC normally brings with is a slightly higher interest rate but i would push for the equity loan and then have the funds paid back into the loan on settlement or set up a separate offset account linked to the separate loan.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi ML,
From what you have written it seems that there are a few misunderstandings in both directions. The banker would have to assess your current debt as well as the proposed new loan, as both are counted in the serviceability calculation. This doesn't mean any changes have to be made, but it is still part of the application. Your borrowing capacity with regard to accessing equity will be dependent on both the security available and your capacity to service the debt.
One problem that comes up a lot with people accessing equity is that it is extra debt with no offsetting additional income being generated. Where the loan is for the purchase of a property, you can use the proposed income of the property which in turn greatly increases your borrowing capacity (in terms of servicing). If you have servicing issues it may be wise to reduce the size of the application for the equity loan and throw in a pre-approval for the new purchase.
You really should sit down with a broker to have these discussions, particularly as it may be that you should use a different bank for the new purchase, this can increase servicing capacity in itself because of the way servicing calculators work). There may also be better options for the existing debt and you may as well explore these now as it would be no greater hassle to refinance and buy as compared to accessing equity and buying.
I hope this helps.
. My problem with this is that his ideas of investing are vastly different to my own. He is lending me money to buy a house that I can move into so I can stop renting. My goals are different – I want to use the LOC to fund as many CF+ and reno projects as possible. To do this I will need a broker who is willing to work with me – not a box ticker.
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