Buying second property using Equity / Redraw facility

Discussion in 'Introductions' started by Ash2992, 3rd Feb, 2020.

Join Australia's most dynamic and respected property investment community
  1. Ash2992

    Ash2992 Member

    Joined:
    3rd Feb, 2020
    Posts:
    7
    Location:
    Sydney
    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
     
  2. JasonC

    JasonC Well-Known Member

    Joined:
    14th Mar, 2017
    Posts:
    227
    Location:
    Sydney
    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
     
    MWI, Propertunity and croseks like this.
  3. Ash2992

    Ash2992 Member

    Joined:
    3rd Feb, 2020
    Posts:
    7
    Location:
    Sydney
    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?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,884
    Location:
    Australia wide
    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.
     
    MWI and Morgs like this.
  5. Ash2992

    Ash2992 Member

    Joined:
    3rd Feb, 2020
    Posts:
    7
    Location:
    Sydney
    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?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,884
    Location:
    Australia wide
    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.
     
  7. JasonC

    JasonC Well-Known Member

    Joined:
    14th Mar, 2017
    Posts:
    227
    Location:
    Sydney
    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
     
    MWI likes this.
  8. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,465
    Location:
    QLD
    Recommend using a good broker rather than trying to go from bank to bank.