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Fixed Loan Equity draw

Discussion in 'Property Finance' started by teetotal, 13th Sep, 2016.

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  1. teetotal

    teetotal Well-Known Member

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    Naive question, maybe brokers here can answer - is it possible to draw equity out of a Fixed loan.
    Also, if Banks can revaluate your property on a Fixed loan with them.
    Not a refinance but just revaluation of property on the same loan product. For ex. If you do renovations and want to use any equity built.
    Not sure if it makea sense ?
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    You can't amend the fixed loan without risking break costs, so leave it in place as it is. To access equity in a property with a fixed loan, you simply set up an equity loan alongside the existing fixed loan.

    Example:
    Property value $500k, existing fixed loan $300k.
    Equity available @80% LVR = $100k.

    New loan structure:
    * Same fixed loan: $300k.
    * New equity loan $100k.
     
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  3. teetotal

    teetotal Well-Known Member

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    Thanks Peter.
    Is that new equity loan can be setup anytime?
    What is the process for setting up that kind of loan. I assume you can only set it up with the same bank as Fixed loan ?
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Practically you can only do it with the same lender. The process is usually the same any other purchase or refinance application. You supply all the documentation, a finance application is lodged.
     
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  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Your phrasing is imprecise and this has confused you.

    You don't withdraw equity but borrow money.
    You borrow against security and it this case you borrow against the same security as the fixed loan.
     
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  6. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    You can't amend the fixed loan without breaking the loan, which can and in many cases (especially in the current environment) trigger a break fee, which can costs thousands+.

    This isn't an issue however, as you can just setup another loan against the same security as a new equity release. You'll want to have this with the same lender and need to fit their policy/servicing, but not a huge deal as it's quite normal to have multiple loans attached a single property for various equity releases.
     
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  7. teetotal

    teetotal Well-Known Member

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    Great info !! Makes total sense.

    So basically its still possible to release equity even though the loan is fixed. You don't incur break fee when doing that, only if you try to change lender or change loan product.
     
  8. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Yes - basically forget about the existing loan, it's doing it's own thing. The equity release is a completely new loan which doesn't tamper with the existing one.
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Its the same principles whether the first loan is fixed or variable.
     
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