Refinancing - do you borrow your own money???

It is not a simple subject. I still don't understand the question because paying a deposit when refinancing is a not a thing. I have refinanced all my loans three times and I have never "paid a deposit" when refinancing. I don't know what that is. This:-

A deposit of 12% when refinancing is not a thing. Perhaps this should say this:-

And you decide to change banks, and to take out a loan at an LVR of 88% and pay mortgage insurance (capitalised).​

And I don't understand this:-

Why? What was the $78k for? Where does the $78k go?

I think the whole question is not correct. It's a refinance with an equity release. As @Terry_w stated above, the new borrowings should go into a split. So the refinance would look like this:-



There would be $140,000 in new borrowings and if you invested this money you would pay interest on the loan but it would be deductible.

 

If the new loans and offset accounts were set up exactly as the poster describes:-

The "deposit" of $78k paid to bank number 2 is not required to pay out the original loans and so would simply be deposited into the offset account along with other surplus funds. Old and new loans would look like this:-



Because there are funds in the offset account, you would be normally paying less interest than the original loans. If you take money out of the offset account, you would pay more interest on that loan, but this is always the way offset accounts work. It doesn't mean you are paying interest on borrowing your own money.

No. At no stage would you be paying interest on borrowing your own money.

 

Refinancing. With a different bank.

It's a thing. I did it. Well, the broker did.

For the deposits on 2 new loans with the new lender at the new deposit percentage.

 

Sorry @Azazel. I have refinanced all my investment loans from Pepper to AMP. Then 3 years later I moved 2 loans from AMP to ING. With some experience in refinancing, I was hoping I could help answer your question but I really don't understand what you are posting at all. I have modelled it over and over in excel and I cannot, for the life of me, get the numbers to add up. The way you have described, it sounds complicated. I would have just done this:



Instead, it seems like you did this:



If the second scenario is correct, all you have really done is increase the amount in the surplus funds (offset account by $39k x 2). I can't think of any reason to do that.

Sorry. I am not trying to pick. I would really like to answer your question. I just need to get my head around what happened before I can.

 

See, it hurts! And it's catching
I'll see if I can clarify tomorrow. Thanks for the fancy Excel screen cap, don't waste too much time on it. What this thread really needs is some dodgy drawings in MS Paint.

 

haha. I am spreadsheet guy. In my last refinance, the poor Bank's settlement solicitor could not figure out how to make the new loans pay out the old loans with my last bank. she called me in a panic saying settlement can't happen and settlement won't happen! I made a nice spreadsheet for her so she could get the cheque instructions correct

Oh yeah! Paint baby. I redesigned my last house in paint. lol

 

I most be missing something...@ 88% where is the LMI?

 

Oh gawd, that's a worry....

 

A few people have arrived at $30k in an offset, which means no more interest paid whilst sitting there. I suspect the two securities, increase equity with price rises, new LVR's, LMI, tax implications, split loans etc has all confused the basis of the query. Hopefully example below helps, taking all of this out of the equation (well, except if the car would be deductible for a certain role, but that is for another thread):

 

Customer has puts down $300k for a $1m property (70% LVR). Using most savings.

Two months later, unhappy customer wants to re-finance to another lender. No price growth or fall in property in such a short time.

This time customer wants to keep $100k for a deposit on an investment property or a new car. So it will be an 80% deal.

Now customer is actually borrowing back $100k. It doesn't magically appear.
Customer decides to buy flash car. Do you think he/she would get it for nothing with no interest paid?

The key is that the $300k has been spent. Gone. If you want to borrow it back, you pay interest.
If you don't want to pay extra interest, you put it into offset.

 

Yeah it was. I admit it was a doozy of a refinance. There were 7 loans secured by three properties and the security property didn't match the purpose for half of them. Still, if I could figure it out - and I have no background in finance - the bank's settlement solicitor should have been able to as well. It is kind of her job to do that Anyway, we got there in the end. And they sent us a bill!

 

You never borrow your own money, or the banks money for that matter. Banks 'write' mortgages. They don't have the cash before hand on their balance sheet, they simply write two entries in their books. One is credit, the repayments you need to make, and the other is debut, the money you draw down. It's how credit 'expands' the economy. If it weren't you could only borrow money when someone else pays theirs back.

 

@Azazel, did you ever figure out what is going on with this? I'm interested to know the answer.

 

Thought all done and dusted!

No missing money, just re-financed with less of a deposit, so more would have to be borrowed all else being equal.

Can't be put any simpler.

 

I'll get there one day I'm sure.
Not sure about being able to explain it clearly to someone else

 

Just remember your deposit was used to purchase a portion of your property (which you still own)...so those funds are no longer owned by you....but the property asset, with the bank lending the difference, is.