How much could I borrow? (Maths correct?)

Lately I've been introducing myself to property investing and have been reading books and around these forums and the old Somersoft ones (F), but alas my maths has deteriorated immensely in the 8 or so years since year 12!

If our PPOR is worth $690k and we owe $430 on it, does that mean we could borrow another $122k on it? (80% of 690 - 430)

If we can borrow $120k, is it correct to say that at 80% LVR we would be looking at around the $600k mark?

Just wondering if we are ready to start looking into it all more seriously or if we need to wait for more equity.

I guess as an aside, with the new APRA regs is 80% almost a pipedream and should we be looking at 70%?

 

Yes, exactly.

If you ignore borrowing costs, yes - but make sure you include stampduty, legals, inspections etc. Also you'll need to be able to service the new IP too, so there's more to it than just deposit.

NO! APRA is really not all that scary, especially for those early on in their investing life. 95% is a pipedream, 80% or even 88% is perfectly fine (assuming everything else works.)

 

This is correct, assuming you're planing to borrow up to 80% LVR. It is possible to release equity up to 90%, but with the APRA regulations that's getting quite tricky with many lenders.

It's not a problem to release equity to 80% at this point in time. It's also not a problem purchase with a 90% LVR.

To roughly calculate how far your deposit will go, figure out the deposit you want to pay as a percentage of the purchase price (10% or 20% in most cases). Add 5% for stamp duty. Divide the amount of funds you've got by that percentage and you'll get close to the maximum purchase price.

Using a 20% deposit & 5% for purchase costs: $120k / 25% = $480k purchase price.
Using a 10% deposit & 5% for purchase costs: $120k / 15% = $800k purchase price.

It's a rule of thumb and not 100% accurate, but it gets you fairly close.

Also keep in mind the other lending criteria is you need to show sufficient income to afford the loan.

 

Awesome, thanks for that!

Do banks include speculative rental, and that the loan is interest only, when assessing whether you can afford the loan?
After rent and changing from P+I to interest only, we would actually be paying less per month if we doubled our loan to buy another property.

 

The banks policies translate to calculators to determine affordability. It's not a simple calculation and most people completely underestimate how it works.

IO repayments actually reduce your affordability. For P&I repayments, the banks assess affordability using P&I over 30 years of payments. For IO repayments, the banks assess affordability using P&I over the 25 years of P&I payments after the IO period has ended. The higher P&I repayment figure reduces your affordability in the banks eyes.

 

All banks will include proposed rental return in your servicing, and a couple will take IO payments on current loans into consideration, where others will treat them as P&I regardless (and then add a bonus margin just to make things even more conservative)

As Pete said, having IO on the new loan reduces affordability.

 

Is it just me or is the maths out?
690 - 430 = 260k
80% of 260 = 208k

Sorry if I'm wrong but I cant see how to get the $122k as per original post?

 

Property is worth 690k
One can borrow up to 80% of the property value ( without LMI) 690k x 80% = 552k

Outstanding loan 430k, so remaining to borrow = 552k - 430k = 122k

Voila!

 

Perfect... thanks