Buying second property using Equity / Redraw facility

Hi everyone,

New member on this forum!

I have one existing IP with approx. 70k redraw available. Looking to purchase a new property to live in. Currently about 80k short to achieve a 20% deposit to avoid LMI on this new property.

What would be my options - should I use the redraw facility, or can I take up the equity in my existing IP (what does this even mean??)

Many thanks

 

Equity is just the difference between what a property is worth and the loan against it.

Some questions to better clarify the situation:

• So what is your IP currently worth?
• What is the loan balance against it?
• Do you have an offset account on the existing loan?
• You say you have 70k redraw available - is that definitely redraw and not money in an offset account?
• Have you been making any withdraws from the existing loan?

If you use a redraw facility, you should first split the loan to keep your existing investment property debt (tax deductable) separate from your new PPOR debt (non-tax deductable).

You should also read up on the tax differences between redraw and offset accounts to learn about mistakes you possibly have already made.

Read up about debt recycling as a possible way to correct it.

Regards,

Jason

 

Thanks Jason

IP is currently worth $575k
Loan balance remaining is $370k
I did have an offset account previously, don't have much in there anymore.
Yep 70k is redraw, not my offset account
I have never made any other withdraws from the account

When you say split the loan, what does that mean practically? Is that a conversation to have with the bank?

Also - how does one access equity? Is it another loan that the bank will issue?

 

Best to seek some tax advice from a licensed professional.

Prob simplest to just borrow separately against the investment property and use that for the 20% deposit and costs and borrow 80% against the new property, ideally with a different banks.

 

So currently with Maquarie for the IP - do you mean borrow against that with a different bank e.g. CBA and then use CBA for the 80% loan.

Or do you mean use Macquarie to borrow against the loan and then go to another bank for the 80% loan?

 

you would need to go with the same bank as the existing loan or move the existing loan to another bank and borrow extra. Banks won't take second mortgage generally.

 

Ash,

One option would be to do a top up and split on existing loan. So then you would have something like:

Loan with Macquarie secured against existing Investment Property:
Account 1a - $370k balance $0 redraw
Account 1b - $0 balance $90k redraw
This is based off a 80% LVR on the value of the existing IP.

Then go to bank B and borrow the majority of the value of the new PPOR.
Account 2a - $xxxxxx (80-9x% of new place)

This is assuming of course you meet the serviceability criteria for the topup and new loan.

Regards,

Jason

 

Recommend using a good broker rather than trying to go from bank to bank.