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How much could I borrow? (Maths correct?)

Discussion in 'Property Finance' started by miked, 1st Jul, 2015.

  1. miked

    miked Well-Known Member

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    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%?
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.)
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    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.
     
  4. miked

    miked Well-Known Member

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    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.
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Banks will take on the new rent of the new place if its going to be the loan they are providing

    only a few remaining lenders will now take IO actual repayments

    IO can actually hirt your servicing moving fwd with quite a few lenders so its important to do that homework and see how it affects you personally.

    now more than ever, generalised lending advice is bit so so

    ta
    rolf
     
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    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.
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.
     
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  8. Maadha

    Maadha Member

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    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?
     
  9. Cadbury99

    Cadbury99 Well-Known Member

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    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!
     
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  10. Maadha

    Maadha Member

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    Perfect... thanks