Can I Withdraw Equity?

Discussion in 'Loans & Mortgage Brokers' started by TrainWreck, 23rd Oct, 2016.

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  1. TrainWreck

    TrainWreck Member

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    Hi Guys and Girls,

    I'm new to the world of property investing and looking for some advise on my rather unusual situation.

    My wife and I purchased our PPOR around 18months ago for $455k. At the time, we borrowed around 95% and took out the loan in my wifes name only with her father as a guarantor to avoid paying LMI. We went with commbank as that is who the father in law was with and it made the guarantor process alot easier.

    The loan is currently split into 2 loans, around 70k secured against the guarantors home and $350k remainder on the other giving a total debt of around $420k. Given comparable sales in the area recently ranging from $500-$600k I believe we could realistically get a valuation done at $500k putting our overall LVR at 84%.

    I would like to know If we are in a position to withdraw any equity to use as a deposit towards our first IP. I currently work fulltime as an Engineer on around 67k gross and my partner casual on around 25k to give an idea on serviceability.

    Cheers.
     
  2. tobe

    tobe Well-Known Member

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    If the val comes in, then you need to borrow more than 84% to get extra equity. Which will costs lmi, unless you keep the guarantee. Keeping the guarantee is problematic though. The cba won't be falling over themselves to approve another guarantee loan. I'd look at removing the guarantee and if you want to borrow more then go to 90% on the new val and pay lmi.
     
  3. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    Yep, best to remove guarantee first and access any available equity if the val report supports it.

    If you dont remove the guarantor the CBA will likely insist on the guarantor having an intrest in the IP purchase as there is no "commercial benifit" otherwise.
     
  4. Terry_w

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

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    You cannot withdraw equity, you can only borrow money secured against the property. This will be calculated as a % of the property value less existing loans - which is a different figure to that of the equity in the property.
     
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  5. TrainWreck

    TrainWreck Member

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    Thanks guys,

    If I was to remove the guarantor from the loan it would mean I would have to put myself on the loan with my wife. I'm fine with that, just wondering if it's advantageous to us down the track in any way to keep me seperate from that loan?

    Also, if we remove the guarantor from the loan and increase the loan to 90% LVR would that mean I will have to pay LMI on both my existing loan and the new loan I take for the IP?
     
  6. Terry_w

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

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    Yes you would want to avoid being on the loan. For both asset protection reasons and loan serviceability reasons.

    And I think you may be incorrect here anyway. Your dad would probably not be an income guarantor, but his property is being used as a security guarantee.

    Yes you will have to pay LMI if it goes over 80%.
     
  7. TrainWreck

    TrainWreck Member

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    Yes I think that's correct, it is a security guarantor not an income guarantor.

    Given all that, am I still better to remove him, put myself on the loan and pay LMI on both my existing property's and the IP?

    Or do I hold out until my LVR is more like 70%?
     
  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    It depends on how much longer term wealth the IP is going to provide.

    It looks like you'll need to leverage up to 90% to release any equity - and the LMI won't be cheap (not ridiculously expensive since the loan is sub $500k) but you'll need to consider this cost.

    First things first - get an upfront valuation done. That will help determine what's possible. From there - you can work out whether the costs are justified.

    Cheers

    Jamie
     
  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    You're not going to be able to release equity in the property until the guarantor is removed.

    The next challenge you'll face is most lenders aren't really doing equity releases above 80% of the property value. There's exceptions, but not may.

    You can practically borrow to 80% of the properties value. You can certainly remove the guarantee at 85% or 90% LVR and pay some mortgage insurance, but for equity release purposes, you usually can't borrow more than 80% of the property value in total.

    This means you'll probably need to wait for the value of the property to increase further before you can practically do anything. The specifics of what can be done will depend on the value of the property and the amount you already owe.
     
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  10. Terry_w

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

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    It would be better for him worse for you.


     
  11. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    With CBA you can get cash out more than 80% - I normally just do a pre-approval for the IP at the same time.
     
  12. TrainWreck

    TrainWreck Member

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    Some really good info guys, I appreciate it.

    Sounds like the first thing I should do is get my property evaluation done.

    Any tips on how I might get this as high as possible? Should I get it done through another bank who wants my business?
     
  13. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    I'd get a couple done - one with CBA (your existing lender) and one with another that will be ok with a 90% refi/equity release (prob ANZ)

    Cheers

    Jamie
     
  14. Corey Batt

    Corey Batt Well-Known Member

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    Lenders won't give you a higher valuation to try gain your business - in general the people overestimate how much banks want their loan when as an industry banks will often reduce their discounts just to try slow the flow of new business in.

    Get an investment based broker val or two with another lender which will suit your longer term needs for equity release policy - there's quite often a +/-10% swing between valuations so you may find the valuation will work in your favour and provide an overall quality option.
     
  15. TrainWreck

    TrainWreck Member

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    Interesting, everything I've read/heard suggested getting valuations done though other banks will often result in higher figures as they want ur business. Not sure I understand why any bank would want to slow the influx of new buisiness but I'm certainly no expert.

    Was also thinking the same about getting the valuations done through a broker with longer term goals in mind.

    Considering checking out some buyers agents (right property group and propertyology top my list ATM) and using the property team they suggest (broker/accountant). Devise a more in depth goal and plan of attack and move forward that way setting up structure with longer term goals in mind.
     
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  16. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Banks aren't exactly desperate for investment business at the moment. They're actively trying to cut back.

    Higher valuations from competing lenders has never really been a thing. Also most lenders outsource all of their valuations to a group called Core Logic (ValEx/RP Data). They don't directly try to influence the valuation and they definitely don't try to win business through better valuations.

    Additionally being able to shop around different banks is more likely to be flagged as a duplicate. We're starting to see multiple requests for the same property start to be rejected by ValEx.
     
  17. albanga

    albanga Well-Known Member

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    I would Pay out the fathers guarantor before worrying about purchasing an IP if I were you.

    Without sounding harsh, your combined income is not overly strong and is made up of a casual basis with your wife. Your servicing would already be limited and throwing in an IP under these circumstances sounds very high risk.

    All it could take is a few less shifts for your wife and some vacancy in the IP and all of a sudden the guarantors home is at risk.

    I am usually risk tolerant but not sure this stacks up.
     
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  18. Gockie

    Gockie Life is good ☺️ Premium Member

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    Hmmm... a fair call here.
     
  19. TrainWreck

    TrainWreck Member

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    Yeah it is risky no doubt but it's a risk I'm willing to take.

    I would take the guarantor off the loan either way so there is no risk on them. I also have about $300/week of other cash in hand income so I'm not all that worried about no being able to service the loan.

    Just figure I'd prefer do whatever I can to get in now and take the risk rather than wait another 2-3 years and lose out on potential capital gains.
     
  20. tobe

    tobe Well-Known Member

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    'Whatever you can' means paying lmi.

    Each lender calculates it differently and there a couple that waive it to 85% some to 90% for specific professions/income levels. Make it your friend, it's the tool you need to take the risk you want.