Forums / Getting Technical / Finance / Reaching your maximum borrowing capacity

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  • Profile photo of SakoSako
    Participant
    @sako
    Join Date: 2019
    Post Count: 10

    Hey all,

    A question regarding financing my properties. I currently own a rental property and it’s worth about 600k, with 500k left on the mortgage. I’m going for my second property soon which is also roughly about 550k. Now, my broker is telling me that I will reach my borrowing capacity once my second property is settled. However, I’m keen on growing my property portfolio.

    So I’m wondering what are my options if I want to purchase my 3rd property. My salary is about $100k (gross)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    options may be to earn more money, or reduce your debt or a combination – if you have exhausted all avenues.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of SakoSako
    Participant
    @sako
    Join Date: 2019
    Post Count: 10

    What happens if I manage to save some money ? So say, save up for another deposit, would the banks now consider it or is 2 houses the limit ? I’m thinking about developers, how they manage to build 3 or 4 units and then sell them.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Saving money is good, but it doesn’t increase borrowing capacity in itself.

    Strangely though, paying down existing loans does increase borrowing capacity slightly because you will have a longer term on the new loan.

    e.g. You have a 30 year loan with $25,000 years to go, you inherit $20,000. If you use it to pay a deposit, you might be able to borrow say $100,000. but if you were to repay that existing loan and then borrow more money you might be able to borrow $125,000 – because the new loan will have 30 years generally.

    This should work well with owner occ loans, but will even work with IP loans. But there are many tax issues to consider before paying down a loan.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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