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1st Investment Property with Equity or Savings?

Discussion in 'Property Finance' started by newbie1234, 14th Aug, 2016.

  1. newbie1234

    newbie1234 Active Member

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    Hi All,

    Just looking for some advice - my husband and I are under contract for a house purchased with our SMSF using a limited recourse loan with St George. Once that settles I am on the look out for an older style unit in the early 300k Penrith area.

    My question is should I use equity or savings?
    At present we are with ANZ for our ppor but we fixed 80% of our loan for 5 years approx 1.5 years ago. Total loan is 384k with 80k in offset. No car loans but my hubby bought a boat with a good loan rate and there's 1.5 years left approx 10k owing. No other loans.
    Income is 140k combined not including overtime with 2 kids. Ppor in current market value approx 720k.

    Will the fixed home loan make it hard to use equity? How would we extract equity or would it be better to use some money from the offset for a deposit?

    Thanks in advance, your kind help is greatly appreciated!
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hiya

    Even with the fixed loan there looks to be some equity to access.

    I assume total ANZ borrowings are circa $500k?

    If val comes back at $720k then there's around $76k in equity you could potentially access which would cover the 20% deposit and costs on a $300k IP.

    Of course - it will also come down to your borrowing capacity, etc.

    I'd use equity over cash personally - borrowed funds are deductible, cash isn't. Also good to have some emergency funds stashed away in that variable PPOR offset

    Cheers

    Jamie
     
  3. newbie1234

    newbie1234 Active Member

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    No our total loan with ANZ is 384k and I have 80k in offset so brings it down to 304k if I wanted to pay it down. Only other loan is the boat with 10k left.

    Thanks
     
  4. newbie1234

    newbie1234 Active Member

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    Sorry confusing 80% of 384k is fixed other 20% is variable. Equity should be 400k
     
  5. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    ahhh right.

    In that case - if property is worth $720k - and borrowings are currently $384k then you've got loads of equity to potentially access.

    If your borrowing capacity permits, ANZ will let you borrow up to 80% of your properties value (well actually 90% but you don't need to worry about that right now).

    80% of a $720k valuation is $576k

    Take this new loan amount of $576k and subtract your current borrowings of $384k and there's $192k in equity you could potentially take out.

    Make sure this $192k (or whatever you take out) is set up as a seperate loan facility (I'd go a variable IO loan).

    Hope that helps.

    Cheers

    Jamie
     
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes borrow to invest as Jamie says. If you dont you will be throwing money away by paying too much tax.
     
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  7. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Equity will 99% of the time trump cash, especially if you have non deductible debt as in your case.

    Pull it out as a separate investment split and you're good to go - thankfully you're with a lender with an effective cash out policy for releasing equity.
     
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  8. JacM

    JacM VIC Buyer's Agent Business Member

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    Since the savings are in an offset account currently, if you withdrew it to spend on another property, you interest would increase due to your reduced balance in the offset account.

    Since you would pay interest anyway, you would absolutely be better off using equity (as has been mentioned above) as the interest would be deductible.
     
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  9. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    A standard practice for active property investors is to take borrowings to 80% LVRs and in some cases 90%, serviceability permitting.

    As already mentioned ANZ have a very predictable cash put policy. A stat dec declaring "intended purpose" is all thats required with ANZ for cash out.
     
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