Basic or complex?

Discussion in 'Property Finance' started by giswal22, 21st Nov, 2015.

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  1. giswal22

    giswal22 Well-Known Member

    13th Jul, 2015
    Hi forumites!

    I have a scenario I cannot find the answer for and it may be simple or quite complex, everyone has different ways of learning so please go easy :)

    -So you have a property worth let's say $450,000 for arguements sake.

    -You have paid it off in full so you owe nothing on it and the funds are in offset if needed for access.

    -After a bit of time, the value increases from $450,000 to $500,000.

    -How do you use the $50,000 increase without owing the bank? Is that possible? Considering you do not owe them a cent beforehand.

    -Is that a refinancing issue then you would owe the bank for the setup?

    -Would you be drawing down any of the $450,000 therefore owing interest?

    -I'm talking for the purpose of using the increased value figure to reinvest

    -Could anyone enlighten me?
  2. D.T.

    D.T. Specialist Property Manager Business Member

    13th Jun, 2015
    Adelaide, SA
    Either sell the property or do a top up.

    If you owe 0 and its now worth 500K, you could get 400K (or higher with LMI) to go spend or use as deposits on more properties.

    Given that you said offset was full, I assume you'd leave those funds in there. This would result on you 'effectively' paying interest on only the increased portion.

    E.g. 400K to play with from bank, 350K of yours deposited in bank. Result is an annual interest bill of 50K x 5% = 2,500. Could be 0 if 400K in offset...
  3. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

    18th Jun, 2015
    You cannot use equity other than by borrowing.

    There are 2 ways to borrow

    Use the property as security by cross collateralising with another property being purchase or the use the property to secure a LOC.
  4. Scott No Mates

    Scott No Mates Well-Known Member

    18th Jun, 2015
    Sydney or NSW or Australia
    If you've paid the property in full, there's no mortgage. If you have all of the outstanding balance sitting in offset, then you don't own it.

    You can take out the money from the offset or draw capital (another loan) or sell but you lose transaction costs.
  5. Wall Street

    Wall Street Well-Known Member

    22nd Oct, 2015
    In addition to any transaction costs, you could be looking at CGT (unless it's your PPoR).

    With a refi to access the $50k, you would only incur the loan establishment fees. However if you had the $450k in the existing facility and weren't using it, could you stick to using just these funds? It would also prevent you incurring any LMI top-up or cross collaterisation if you wanted to borrow 100%.