Equity

Hi Everyone,

I am a relatively new investor, 1 and a bit years old. You all seem very knowledgable on the topic of loan structure so just a quick scenario to pick your brains.

Scenario: Purchased a property using parents guarantor for the loan with after costs loan being >100% LVR. Purchase price $480,000 (I think loan was around 500k)

1 year and four months later property is valued @ $605,000 and could be refinanced to release guarantors.

Now my question is, once the bank secures the property against its new value, there is no remaining equity left to use right? And I will have to wait now for further CG before being able to access equity for subsequent deposits. Is this correct?

Cheers!

 

500/605 = 83% LVR

605 = 80% = $484,000 so no ability to borrow without incurring LMI

$605k x 90% = $544k
less $500k existing loan
=$44k potential loan amount - less LMI.

 

Thanks terry! Sorry I should've mentioned that the current loan is now at 480k after repayments.

Also does that mean, in regards to the second part of my question, that I could use the existing equity to release the guarantors and then also for subsequent reinvesting?

 

Yes, at 90% LVR you could do that if the lender was willing.

 

@Danmicb, quick turnaround to release a guarantor. Nice!

You'll have $4k spare at 80% to invest with.

And about $50k if you got to 88% (if the lender will allow).

 

I read it that you had released the guarantee. If the parents house is still securing your loan then yes you could and should release it.

 

Thanks @Terry_w , @Jess Peletier and @Steven Ryan !

@Steven Ryan Yes it's was a great way to get a foot into the market with very little money down and now with the CG coming in its worked out well.

Do you guys generally aim to access your equity at 80% or higher? Do you find you run into issues with banks when leveraging equity at >80%? If the bank allows for it, I'm of the thinking, in the early accumulation stages, higher LVRs make less of my money work harder for me.

I also have 60k savings so looking to put a separate deposit down on another property, with again a 90-95% LVR. So far banks that I have enquired with are with than happy to provide me with 95% investor loan and already have pre-approval.

 

Early on, use around a 12% deposit if possible, or you can go up higher but LMI is expensive.

 

Accessing equity over 80% is a lot tougher than it used to be, but still possible depending on lender and your financial situation. Keep in mind a pre-approval will no longer be valid if you increase the loan amount for your current property. It's also not a good look to have pre-approvals on your credit file that don't get used so might be worth chatting to one of the great brokers on here to look at your options first.

You're right – utilising LMI makes the most of your resources. Over 88%, LMI can go up exponentially but in some cases it can make sense. I used 88% loans to build my portfolio.

Sounds like with your cash + equity, if you have the serviceability, you're probably in a position to buy again.

 

pay your saved deposit into the loan, then refi and take the guarantors off. Set up 2 loans, one for the reminder of your loan (circa $420) and the other for investment (circa $110)to 88%LVR.
Use these 'borrowed' funds as 12% deposit on your next purchases.

It took you a while to save that $60k cash, don't blow it and use a cash deposit on investment purchases.