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Refinanced and extracted equity used for buying other asset class

Discussion in 'Property Finance' started by Jamestangjjj, 19th Aug, 2015.

  1. Jamestangjjj

    Jamestangjjj Member

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    I would like to know if the banks allow taking out the re-financed equity sitting in the offset and using it to say buy a business or share?

    will the bank limit you to what you can or cannot do with that equity?
     
  2. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Depends on the lender and LVR.

    Some ask a lot of questions, others, not so many (though with recent APRA changes, more questions are being asked). Some would rather you buy shares than another property with equity, others won't give cash out unless you have a contract for the property you intend to purchase with the funds.

    Which lender are you with or is this just a hypothetical question?
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Are the funds already in the offset? If so, you can spend it on whatever you feel like.

    If not, you'll need to state the purpose and buying shares is perfectly fine. Buying a business might raise a few more questions.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Have you already accessed the equity and it's sitting in your offset?

    Cheers

    Jamie
     
  5. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    It depends on a number of things like lender, LVR, credit scoring, etc.

    If you say shares and you don't own any shares then don't be surprised if the lenders asks for a strategy recommendation letter from a financial planner.

    Business purposes is far more complicated with most lenders as is commercial property purposes. Some lenders handle this better than others.
     
  6. Redom

    Redom Mortgage Broker Business Member

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    This will depend on a few things:

    1. If buying a business, it can get complicated. As Shahin mentioned, lender selection will be important here as some are easier than others.

    2. If buying shares, than its reasonably easy to do. 'Stated' purpose MAY do, but its quite possible you'll need to verify it. Stated purpose will work at <80% with many lenders (ANZ may do it at 90). If verification is necessary, a planners letter will suffice.

    Reading your post, if the funds in your offset, the lender doesn't look at what you've done with the funds.

    Cheers,
    Redom
     
  7. chylld

    chylld Well-Known Member

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    You may have issues with tax deductibility if you have had the money from the refi piled into your offset with other savings. See Tax Tip 9: Don’t use Cash in Offset account to Invest

    The proper way would have been to refinance as a new borrowing (separate loan to your main property loan) and invest directly out of that.

    That said, I have heard of friends taking the refi as cash in a new offset account, offsetting a new loan account (sounds ok from a tax perspective?)
     
  8. wombat777

    wombat777 Well-Known Member Premium Member

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    @Steven Ryan - do you see any lenders having issues with using released equity for pre-contract / search costs such as Buyer's Agent fees? At this point a specific property hasn't been selected. The main game is maximising deductible interest.
     
  9. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    If the LVR is sub 80 then most lenders will be fine with a comment such as "cashout for future investment property purchase" - if it's above 80, they'll be ok that you use the funds to cover the deposit/costs on an IP they'll just want to see contract of sale for the property being purchased or a preapproval for the purchase lodged via that bank. Some banks have less rigid requirements above 80 - ANZ for instance.

    Cheers

    Jamie
     
  10. twobobsworth

    twobobsworth Well-Known Member

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    I hear many comments such as sub 80 LVR it's easy, surely you have to meet DSR requirements?
     
  11. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    yes - you have to be able to service the equity release.

    It's easier in the sense that they'll release the funds straight away rather than waiting for you to find a property and show them a contract of sale.
     
  12. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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  13. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

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    No but don't be surprised if they ask how much the new property you intend to buy will cost and how much you will be borrowing so they can factor the repayments into the equity release.

    Cheers


    Richard
     
  14. Jamestangjjj

    Jamestangjjj Member

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    Thank you all for your comment.

    My situation is i had re-financed and the equity is currently sitting in a separate loan account and not in my offset.

    My question is now that i have this equity in the loan account. Can i use it to buy a car ? a business? a boat? do i need permission from the bank as to what i can use it for?
     
  15. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

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    No go for your life.

    Won't comment on whether drawing it and placing it in another loan account was the right way to do (as we don't have all of the facts to hand) but assuming you can access the funds by redraw then go spend it.
     
  16. chylld

    chylld Well-Known Member

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    Just don't use that loan account for both an investment and a toy, and expect interest tax deductions to be simple :) See tax tip 3
     
  17. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Once released - you're free to use the funds as you please. The only real post settlement control a lender can have outside of you not meeting your commitments is calling in line of credit's - so your normal term loan with cash in offset is free for you to use as you please.
     
  18. wombat777

    wombat777 Well-Known Member Premium Member

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    Thanks guys. Met with my broker a couple of days ago and my serviceability is good. Will only be looking to do equity release up to 80% LVR. My serviceability is actually in good shape for buying my next two IPs, so intend to use the equity release to fund the deposits and stamp duty.

    I actually have other cash in offsets, but it has been recommended to use a source for deposits where interest costs will be deductible.
     
  19. Jamestangjjj

    Jamestangjjj Member

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    cool thank you all. it sounds like once it is in the loan account i dont need permission to use that money for buying other things if when i meet the repayments.

    I wanted to use this money to buy a business that is why iam asking but just curious what else i can buy without having to notify the bank.