Home Equity Withdrawal %

Hi all,

First time poster here. We have a PPOR that we bought for 1.3m with 88% LVR + LMI Capitalized with AMP. We are in the process of doing a renovation that based on comparables should increase the valuation to between 1.65m and 1.85m. After paying for the renovation with cash we are down to our cash reserves that we plan to keep so we have a buffer (30k).

Our Long term goal is to generate 200k of passive income a year in todays dollars in 15 years time.

Our combined income is $320,000 a year so from a serviceability/DTI basis we believe we could borrow around 6-7x that. We have no other debt or dependents and are saving around $8k a month currently.

In order to make our next purchase in a faster timeframe we believe that using Equity withdrawal is the fastest way to do this.

1. What % can we withdraw our equity to. Would it be only to 80% LVR if we got a valuation between 1.65m and 1.85m or would it be 88% or the percentage with the LMI (Approx 90%).

2. When banks are looking at serviceability where equity withdrawal is being used I would assume they just add the equity withdrawal to your current debt load and subtract that from your borrowing capacity. Is that correct? So as an example if your borrowing capacity was $1m and you took $200K in home equity withdrawal, your updated borrowing capacity would be $800k.

 

You can\t withdraw equity, only borrow money. Generally you can borrow up to 80% of the value but this could be 90% in some cases - subject to servicing etc.

 

Thanks for that reply Terry. If 90% passed servicing, would an additional LMI payment be required or would that initial LMI payment that has been capitalized already cover that.

 

More LMI would be payable but you would get a credit for the amount paid already - if the same lender

 

is the DTI below 6.

 

1. Some lenders allow cash out (equity release) up to 90% inclusive of LMI
2. Depends what you're buying, eg Investment property, it's not that straight forward.

Suggest engaging a good mortgage broker to assist you, they should be able to map out the finance side of things in line with your long term goals.

 

Our Current DTI is 3.42. So we would be looking to increase that with an IP Purchase to within that 6-7 range

We would be looking to buy an IP. Will look to reach out to one on these forums who is accepting new clients.

 

DTI in that range is fine BTW
Rental income and negative gearing would assist in your borrowing capacity when buying an IP

 

Hi Rolf, I guess the issue here is if we went over 1.5m, AMP would want us to cross collateralize the properties or require approval from a higher credit team. That's useful to know as cross collateralize is something we would avoid at all costs.

 

You do not need to cross with AMP - or any lender.