How often should you refinance to pull equity?

Discussion in 'Loans & Mortgage Brokers' started by NPSydney, 16th Apr, 2022.

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  1. NPSydney

    NPSydney Well-Known Member

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    Hi PC community, just a general question for today.

    How often do people refinance with their existing lender or pursue a new loan arrangement with a new lender to pull equity? I assume lenders do not like borrowers who do this on a regular basis but is say every 6 months reasonable? What do the brokers on PC community advise and recommend?

    I have a client in an occupation which regularly increases her base salary and I was keen to get some broad feedback regarding this topic. FYI the equity which is "pulled" will be used primarily for investment purposes (not sure if this is relevant).
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It depends on a lot. You would need to overcome cash restrictions and have tax issues to consider so best to prob wait until you need it. Unless you anticipate a change of circumstances perhaps
     
  3. Ruby Tuesday

    Ruby Tuesday Well-Known Member

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    About every 5 years is how it works out for me. It takes about that time frame for compounding to start its magic and mini cycles to happen.
     
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  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    There's no rule for this and you probably shouldn't do it just for the sake of doing it. Access equity when there's a purpose to it.

    Honestly though, the best strategy is to be constantly saving money, first to pay off non-deductible debt. This can then be recycled as a deposit for the next property. Pulling equity and only increases debt and will mean you hit debt ceilings sooner. You'll do better overall if you don't need to draw on equity.
     
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  5. NPSydney

    NPSydney Well-Known Member

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    Thanks @Peter_Tersteeg that’s interesting insight. I basically have a client who has a property and she was only able to borrow approximately $2m against $4m property value. The borrowing was capped due to income. Currently, my understanding is that her income growth is strong enough for her to be able to increase her borrowing power by $100k-$200k ish each year and therefore was curious what others do. As a side note, a number of my other clients are sitting on significant cash buffer and that has significantly assisted with a “rainy day” and I would ideally like my client to also have this.
     
  6. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Like ehat Peter said, there isn't generally a rule, but it depends on other factors..like...are you purely refinancing JUST for the cash out? Or is there a better product as well ?

    Is the client actually going to use the cashout straight away or its just sitting there for a rainy day?
     
  7. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Equity position has nothing to do with borrowing power. As you've noted, borrowing capacity is dependent on income. Equity is what gives you security to borrow against.

    How much someones income will increase doesn't matter. Income today is what counts, lenders won't give consideration to future income.
     
  8. Lindsay_W

    Lindsay_W Well-Known Member

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    Never assume.
    Lenders font really mind how often you do this, as long as the serviceability is evident and is within policy and lvr
    Some lenders are more lenient with cash out >$100k than others though
     
  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Actually some do mind. There's a few lenders that won't let you top up within 3 to 6 months of the last application on that property. I had a deal last week with Macquarie that needed state manager approval to proceed.

    The client has plenty of equity and serviceability released $45k for a car around Christmas. Easily financed. Then an amazing deal presents itself, they need $100k to purchase a $1.3M property outright. It needed state manager approval to proceed. Not a big deal as I had detailed notes for the purpose, but it held things up for 2 days. It probably helps that I know some very senior people at Macquarie as well. ;)
     
  10. NPSydney

    NPSydney Well-Known Member

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    Thanks @Peter_Tersteeg that’s really good to know. This specific client will only be going back every 6 months (if that). It’s interesting to learn how each lender operates differently.

    Regarding your comment about knowing people in Macquarie, that’s interesting to read because I thought the credit team was completely independent.
     
  11. Lindsay_W

    Lindsay_W Well-Known Member

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    Whatever, I've done equity releases with Macquarie one month after settlement, and I don't even "know some very senior people at Macquarie" it's not hard or as complicated as you might like some people to think it is.
    And yes, I've done it with many lenders and NEVER had a push back.
     
  12. Lindsay_W

    Lindsay_W Well-Known Member

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    They are, they don't just throw credit policy out the window, even if your name is Peter Tersteeg ;)
     
  13. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Knowing the right people doesn't get them to change the rules, but it can get them to think out of the box and get things done.
     
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  14. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hi there

    There's no set formula to follow - it all comes down to individual needs and goals. If your clients longer term financial goals are linked to routinely releasing equity for investment purposes - and they understand the risks of leveraging, etc then go for it.

    From the banks perspective - some lenders may require "proof" of what the funds will be used for if borrowing above a certain amount. Some lender won't have any restrictions on the size of the cashout if the LVR is under a certain percentage.

    Cheers

    Jamie
     
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  15. samiam

    samiam Well-Known Member

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    Just very general Q-
    Which could have negative impact in future serviceability? Refinanced loan 450k or new loan 450k, provided that same income, debt etc
     
  16. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    A refinanced loan is a new loan.

    In simple terms, replacing one loan with another loan should have the same impact on borrowing power assuming they're the same amount, interest rate and loan term.

    However there are a number of things that can be done, or loopholes that can be exploited with the right lender, that may mean resetting the loan or using the right lenders at the right time can improve serviceability. The specifics of this will depend on individual circumstances.
     
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  17. dabbler

    dabbler Well-Known Member

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    Only when acquiring, you have to have a purpose, well at least I have always had too, not sure lenders will give money without a reason that they feel is reasonable unless small amounts and you have near nil commitments, in which case, why would someone want the cash ?
     
  18. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Challenge or opportunity

    Many of our clients like to "lock nut" their equity on a regular basis, and the amount obviously depends on the equity available.

    We dont like doing 50 k equity loans, wihthout a targetted outcome like another IP, since the income is nil, in fact there is a significant cost to get these done.

    Having said that, most of these peops do make use of these equity pulls for some form of investment purposes.

    ta
    rolf
     
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