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How to calculate LVR and borrowing capacity ?

Discussion in 'Property Finance' started by AlbertWT, 25th Jul, 2016.

  1. AlbertWT

    AlbertWT Well-Known Member

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    Hi everyone,

    I'm seeking some calculation advice and some suggestion about how much is the LVR in my investing case below ?

    [​IMG]

    Assuming I only have one single account as my offset which is now $178,000.

    is it possible to calculate the borrowing capacity & equity for my next purchase ?

    Thank you in advance for your help.
     
  2. LifesGood

    LifesGood Home Building & Development Consultant Business Member

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    Your LVR is approx 53% however to work out your borrowing capacity you will need to speak to a broker, and provide a heap more info.

    Best of luck!
     
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  3. Redom

    Redom Mortgage Broker Business Member

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    Heya,

    To work out your current LVR: Total Loan amount/Current Valuation amount, which ends up being around 53%.

    This LVR may vary slightly depending on the exact valuation you get - which often varies slightly with each valuation you do.

    With regards to your borrowing capacity - banks work this out by calculating the difference between your total income, deducting your expenses (their 'assessment' of your expenses, not your calculations). Whats left over determines your borrowing capacity.

    Without more information about your overall income and expense levels, its speculating what your total borrowing capacity may be. A broker or banker can work this out in more detail with you.

    Cheers,
    Redom
     
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  4. AlbertWT

    AlbertWT Well-Known Member

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    Thank you @Redom and @LifesGood with that amount of LVR is that good or bad ?
     
  5. AlbertWT

    AlbertWT Well-Known Member

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    Regarding the equity, can I say that I can calculate roughly like:

    Equity = Valuation Price - Purchase Price + Offset account total
     
  6. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    If I had that in my IPs I'd bring them back to a 80% loan ASAP and start shopping again.

    Assuming I had serviceability, of course. :)
     
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  7. Redom

    Redom Mortgage Broker Business Member

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    To get an estimate of your total equity: Current value of the properties less the current loan amount. The actual realisable value of your equity may differ marginally from this given the transaction costs in selling.

    Also note your total equity is a different number to what the banks will be willing to lend to you. Banks won't release your total equity and give you access to it.

    Essentially banks will let you release 80% of the total value of the property reasonably easily, possibly 90%. Sometimes people refer to this as your 'useable equity'.

    That is, your Useable equity: (Total Value * 80% LVR) - loan amount

    To be able to release your equity so that you have access to it (as Gockie mentioned), you'll need to be able to demonstrate to the bank you have the borrowing capacity to release it.
     
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  8. AlbertWT

    AlbertWT Well-Known Member

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    @Gockie which means the loan is getting bigger again o_O ?
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yes. Using equity for deposits tends to be a much better way to get into more property more quickly rather than trying to save deposits.
    It's also more tax effective than using cash, particularly if you have non deductible debt to pay down.
     
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  10. AlbertWT

    AlbertWT Well-Known Member

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    Cool, now I begin to understand more ;).
    Thanks Jess and @Redom for the formula.
     
  11. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Money in the offset account is your savings, not equity in the property. Technically two different things. You could use your savings from the offset account to pay down the loan and increase your equity (but I wouldn't as it's generally better to keep your savings separate).

    Equity is the difference between the value of the property and what you owe.
    Equity = Valuation - Loan

    Keep in mind that if you want to borrow money, you can't take out all your equity, in most situations you can only borrow 80% of the property value:
    Useable Equity = (Valuation x 80%) - Loan.

    Determining your borrowing capacity is quite complicated and varies from one lender to another. You need to see a broker to determine this.
     
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  12. AlbertWT

    AlbertWT Well-Known Member

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    @Peter_Tersteeg Cool, now I know more about how to calculate the rough equity myself.

    Thank you very much for the sharing here people.
     
  13. albanga

    albanga Well-Known Member

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    Regarding whether or not it is a good or bad LVR is really more about your appetite for risk and how comfortable you are with debt.

    I think 99% of people on these forums would say 50% LVR is fantastic and they would all be sleeping very comfortable at night.

    Someone however in a very volatile industry with a high change of redundancy and limited transferable skills would probably be kept up late at night with anything less than 0% LVR.

    Banks basically consider anything above 80% as more risky hence LMI becomes payable and the higher the LVR the higher the LMI payable.
     
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  14. AlbertWT

    AlbertWT Well-Known Member

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    Now I am fully understand @albanga. thank you very much for the sharing.
     
  15. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Assuming your figures are accurate then I would seriously consider taking your lending to 80% serviceability permitting, even if you intend to purchase no more properties it can still be a great buffer / rainy day money.

    Lender policies are continuing to tighten and who knows what the future holds so get the credit while you can cause when you need it most is usually when you cant get it!
     
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  16. AlbertWT

    AlbertWT Well-Known Member

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    Many thanks Colin.
    I will see if I can get some borrowing and keeping my LVR slightly below 80%

    Serviceability should not be an issue because I'm currently looking for cheaper property under $310k with higher yield.
     
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  17. larrylarry

    larrylarry Well-Known Member

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    I'm going to work out my LVR for all my properties tonight . from the top of my head, 2 of them around 45%. not sure if I want to put it up to 80%. but I understand, cash is king.