All Topics / Help Needed! / Equity to purchase 2nd property

Viewing 9 posts - 1 through 9 (of 9 total)
  • Profile photo of glengaryglengary
    Participant
    @jamesbi
    Join Date: 2014
    Post Count: 45

    Hey guys I been reading about people accessing their equity in there current properties to purchase 2nd Properties. I want to understand how it works if your current home is 300,000 and you have remaining 240,000 to pay off with 40,000 equity to purchase the 2nd property what happens to your current loan does it simply go back to 300,000 again or how does it work???

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hiya

    Most lenders will let you take your borrowings up to 80% of the properties value when releasing equity.

    Some will let you go up to 90%

    If we take the 80% scenario for instance – we use 80% the value of your property ($300k) which is $240k and subtract the current loan ($240k) to work out how much equity you can access – which in this example would be $0.

    If you borrowed up to 90% – we use 90% the value of your property ($300k) which is $270k and subtract the current loan ($240k) to work out how much equity you can access – which in this example would be $30k

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    You need to realise that actual equity and usable equity are two different things when it comes to borrowing, and Jamie basically covered that part of the equation above.

    To answer the other part of your question Newbie, you should really access the equity as a separate loan split under the same security, especially where IP's are concerned. That way tax deductibility is maximised and it makes it easy for your accountant to work out what those figures are come tax time.

    So using Jamie's example above for 90% maximum loan the structure would look something like this:

    Property Value – $300K

    Loan 1 – $240K (existing loan)

    Loan 2 – $30K (new equity loan split)

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
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    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of mattstamattsta
    Participant
    @mattsta
    Join Date: 2011
    Post Count: 604

    For loan 2, I generally like to use Home Equity Lines of Credit (HELOC) which acts as a separate loan, and whihc you can use for deposits for your next IPs.

    Profile photo of Cards DarwinCards Darwin
    Participant
    @cards-darwin
    Join Date: 2013
    Post Count: 4

    Hi Tom,

    “Same Security” meaning the PPOR new Loan 2, is only secured by the PPOR & not secured by the new IP.

    Thus not cross secured, is this correct mate?

    Regards.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Hi Cards

    Yes you have it in one.

    Keep the loans separate and give yourself flexibility and choice.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Cards DarwinCards Darwin
    Participant
    @cards-darwin
    Join Date: 2013
    Post Count: 4
    Profile photo of Shiny_Suit_ManShiny_Suit_Man
    Participant
    @shiny_suit_man
    Join Date: 2012
    Post Count: 54

    So just to elaborate more on what has been said so far. When you draw on the equity (using the example above) does your loan increase back up to 270k when you use the 30k equity?

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    If it’s a topup of the existing loan it would increase to 270k. However in the case of a PPOR, you would generally setup a separate equity access with a balance of 30k.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

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