Pay off house in cash but want access to equity?

Discussion in 'Loans & Mortgage Brokers' started by purkulator, 12th Jun, 2022.

Join Australia's most dynamic and respected property investment community
Tags:
  1. purkulator

    purkulator Well-Known Member

    Joined:
    24th May, 2020
    Posts:
    296
    Location:
    Victoria
    if you are able to afford to pay off a house in cash, but wanted the flexibility of having access to the equity for future investments. What are the options? Or is having a loan with 100% offset the only way to go?
     
    purkulator, 12th Jun, 2022
    #1
  2. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

    Joined:
    23rd Aug, 2015
    Posts:
    1,577
    Location:
    Bella Vista
    Pay off the loan, retake back out at IO with offset for Inv use.
     
    Tony Xia, 12th Jun, 2022
    #2
  3. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

    Joined:
    12th Jul, 2015
    Posts:
    2,220
    Location:
    Melbourne, Australia
    Speak to a good mortgage broker first. Generally the process is use the cash to pay off your home loan and then have the broker submit an equity release application. However talk to the broker first. Equity release is a borrowing event, so you want to ensure you will be able to service up for the loan before you go down this path. No point doing it if it won't get approved. You will also wajt to be clear in understanding that you will also be able to get a subsequent loan to buy an investment property (or whatever the investment activity may be that you have in mind).
     
    JacM, 12th Jun, 2022
    #3
    craigc likes this.
  4. purkulator

    purkulator Well-Known Member

    Joined:
    24th May, 2020
    Posts:
    296
    Location:
    Victoria
    Sorry i should say if i got cash to buy a house now and want to potentially pay it upfront but later wanting to access the equity for investment or other use. Is it a bad idea or should I get an IO loan with offset from the beginning?
     
    purkulator, 12th Jun, 2022
    #4
  5. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

    Joined:
    12th Jul, 2015
    Posts:
    2,220
    Location:
    Melbourne, Australia
    Do you have a home that you live in that has any debt?

    Do you own a home that you live in? If not you probably want to keep as much cash as possible in an offset somewhere that you can pull out and buy a home to live in when you are ready (mortgage interest on a home you live in is not tax deductible, so if you own multiple properties, that's the one where you want little or no debt)
     
    JacM, 12th Jun, 2022
    #5
  6. purkulator

    purkulator Well-Known Member

    Joined:
    24th May, 2020
    Posts:
    296
    Location:
    Victoria
    Hi jacqui, no i don’t. That is why i am wondering how to structure it in such a way that future investments are possible
     
    purkulator, 12th Jun, 2022
    #6
  7. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

    Joined:
    12th Jul, 2015
    Posts:
    2,220
    Location:
    Melbourne, Australia
    Never know when you might fancy buying something to live in. In this regard, there is merit in borrowing to buy, and storing spare money in an offset account. This presumes you can control the urge to dip into the money for unnecessary expenditure.
     
    JacM, 12th Jun, 2022
    #7
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,654
    Location:
    Gold Coast (Australia Wide)
    Cash out can be problematic with many lenders, and with rates on the rise, borrow cap today, isnt going to be what it will be in 3 mths or 3 years time

    Borrow money when you least need it in a structure that provides nil repayments would likely be good general advice here.

    ta
    rolf
     
    Rolf Latham, 12th Jun, 2022
    #8
    JacM likes this.
  9. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    42,005
    Location:
    Australia wide
    3 ways
    a) borrow and fully offset
    b) borrow and pay down the loan to close it
    c) pay cash and borrow later
    - will get investment rates with most lenders
    - will be more difficult to borrow
    - cash out restrictions need to be overcome.

    each has different tax and legal consequences too
     
    Terry_w, 12th Jun, 2022
    #9