Thoughts on equity release

Hey guys (1st post!),

Currently on a 2yr fixed loan on one of my IPs

- Looking to do a separate variable split to release 70k equity for a deposit towards another IP

Variable split doesn't have offset, only has redraw

I was thinking to put the 70k total in the redraw account to minimise my repayments until I find the IP - my understanding is that I would still be making the principal repayments (not interest) during this time

Is this the best way to do it? Any other suggestions would be much appreciated

Essentially, I would love to not have to pay anything until I need to redraw the funds when I find the IP

 

A redraw is just extra payments you have made. It is the banks money. So taking it out and putting it back in makes no sense.
It's not a separate account like an offset.

 

i thought by doing this - the loan balance effectively becomes $0 and so I wouldn't be charged any interest (just the principal) for the time being

 

yea I'll have some non deductible debt probably in the next 1-2 yrs

ah so the full repayment is based not on the balance but the total limit (incl. redraw balance) - correct?

in terms of IO - any specific way you recommend structuring it (as in do I need to park all the funds in the redraw from the start) or just leave it as is?

 

perfect thanks - just so I'm clear - this is because interest will be calculated on the $0 current balance and so because it's IO - there's no repayments at all (since principal not relevant here)

as you said, there's no real difference between having redraw or offset in this specific case

 

Does your lender have a variable rate product with a offset option? Or are you choosing to not have an offset feature to save on fees?

If so, you can set up the equity release loan as a variable rate loan with offset and IO repayments. Until you use the funds, you won't be charged interest and you don't have to make loan repayments. Plus the fees for an Investment purpose loan may be tax-deductible.

If you do a equity release on variable rate product with just redraw and you put all the funds in the redraw, there is a chance the lender may close the account as they may think it's fully paid off.

 

If that's the case, I'd certainly be going IO on this loan so you can focus on paying down the non-deductible debt as a priority when the time comes.
Prefer an offset account vs using redraw

 

If its interest only and 100% offsettrd or in redraw the you won't have to pay anything

 

If you do go down the P&I and redraw option, be careful.

As already noted, you need to make the full repayment every month. If the amount owning becomes $0 the loan will be closed and you will no longer have access to the equity loan or the money in redraw.

The loan amount could go to $0 because you put all the money back in there or because the next principal repayment reduced it to $0. Either way the result is the same. Always make sure there's still a little owing.