Hi, I went to a broker to borrow against my house. She talked me out of an equity loan (because I can borrow more with another loan) and said LOC were not available anymore. Can someone explain the difference between the two for me please. I want to have the money available in case I find a bargain one day or to invest in the share market. Also, do these loans expire? Thanks
LOC is IO for the life of the loan in the traditional sense ...ie an evergreen loan Limit. lenders have generally pulled these from the market because of the forever IO term, and the cost of capital being needed for loans that arent being used to capacity AMP will maintain theirs because its not an Evergreen facility and has a max IO term of 10 years, and its needed to make their Master Limit work. What is available is a term loan IO for 10 years with a few lenders with 100 % offset, followed by 20 years PI ta rolf
No, but you will need the property equity and serviceability to qualify for a cash out loan, and a lender that will do such a loan without providing evidence of what the funds are to be used for ta rolf
Yeah I have the equity and the serviceability, I just haven't found the right property (they are all getting bought by cash buyers).
I still don't know how the equity loan works? Do you begin making repayments immediately, or is it like a LOC and you don't pay for it until you spend it?
There are 2 ways to borrow against the equity in a property - one way really, but 2 different products. a) line of credit which is like a big credit card. You can draw down money in stages and pay interest on what you have taken out. or b) a term loan, like a 30 year PI loan or an IO loan that reverts to a PI loan. These loans will generally require all the money to be paid out at settlement of the loan. You direct it into an offset account attached to the loan and leave it there until needed, or put it back into the loan and pay out of the loan when needed. Which you do will depend on the lender generally. There are lots of tax issues with either and generally I recommend my clients use the second method (with care to avoid stuffing up the tax side)
Rates on a LOC are higher so much higher than a P&I loan that your cash flow would likely be better with P&I. Very hard to come up with a reason to use a LOC product. A properly structured variable loan can achieve the same outcomes.
For an investment IO term loan varies a little on the lender mix, the security, the LVR, 2.59 to mid 3s. Variable rate is a moot point while fully offset..............Most folks convert the loan or a chunk of of it after use to a fixed rate LOCs are dead. NAB, CBA, ANZ WBC group have pulled theirs from new sales ta rolf
Just want to clarify the B, some loans don't come with offset and redraw only, so @refinanced settlement let's say $100K equity gets deposited in the newly opened saving account of that bank with zero balance and after then borrower transfered that 100K back into the split while searching for bargain and monthly installment starts. In 2 months time, there is a bargain and now tgat 100k be taken out using redraw option to invest without mixing any other money- Do you see a tax issue for interest claiming?
