Borrowing capability - Redrawn Balance

Discussion in 'Loans & Mortgage Brokers' started by Khooj123, 3rd May, 2018.

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  1. Khooj123

    Khooj123 Member

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    I have some confusions around loan liability and hoping experienced members here be able to help me clarify my doubts.

    I went to see broker to check out borrowing capacity. Let say my original loan was 300k, pay off 200k , remaining balance 100k.
    So my loan balance is now 100k , fund available to redraw 200k.

    To my surprise I was told bank will still treat me with loan liability of 300k because of fund available to be redrawn.

    Question: is that mean there is no difference how bank looks at borrower loan liability between loan with offset vs loan with redrawn?

    Any insights will be greatly appreciated. Thanks.
     
  2. Redom

    Redom Mortgage Broker Business Plus Member

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    Yes, if the 100k can be taken out by you at all (either by offset, redraw or LOC facility), then it will be factored into servicing.

    So the bank will view your total debt as 300k.

    If you actually reduce the principle of the loan and lose access to the 100k in redraw (ie bring loan limit down to 200k), than the bank will take 200k.

    This is the same treatment of debt across all lenders.
     
  3. Tom Simpson

    Tom Simpson Well-Known Member

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    Your broker is correct, the redraw is funds available to be borrowed. Which means although you don't owe it right now, if you applied for a loan based on max capacity with your $100k debt, once approved you could redraw the additional $200k. This means from the perspective of your new lender you've borrowed more than you can afford.

    Offset is different to redraw. Offset is your cash sitting in an account which you can use at any time without borrowing. Redrawing funds is reborrowing funds.
     
  4. chylld

    chylld Well-Known Member

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    Both scenarios would still leave the loan limit at $300k, so there is no difference. The $300k limit is the only thing taken into account for serviceability.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    $300k for the reasons already stated.

    Quite a few lenders are now asking for statements that demonstrate the limits of all existing loans, so it's not really something you can fake.

    What you can do is call the existing lender and ask them to cancel the redraw and reduce the limit. This might not be a good idea however, as there's lenders where existing loans are treated more favourably than new loans. It's also like paying off a dollar only to be able to borrow a dollar. Unless there's a specific reason (perhaps the new loan has a lower rate), there's no net gain.
     
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  6. chylld

    chylld Well-Known Member

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    Possible solution: take out the redraw as a new split, and use that to help fund the next purchase (thereby requiring less new borrowing for it) and substitute security later if you wish.
     
  7. Khooj123

    Khooj123 Member

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    Thanks all for your valuable inputs.

    I applied wrong strategy by removing offset facility thinking that will help with my serviceability and getting lower rate.
    But glad that I learnt valuable lesson now
     
  8. Khooj123

    Khooj123 Member

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    Yes that is going to be my strategy so that I get to separate my non tax deductible home loan vs deductible investment loan. I find interest rate LOC is generally a bit higher hence didn’t want to go that path.
     
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