Using equity in home to buy investment property

Discussion in 'Loans & Mortgage Brokers' started by Savy mum, 7th Apr, 2017.

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  1. Savy mum

    Savy mum Well-Known Member

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    Hi there,
    I'm very new to this. I haven't bought an Investment Property before so I'm feeling very overwhelmed which Im sure you all were.
    The broker has mentioned I can use the equity in my property to buy the investment without any money changing hands. Is that correct? So when or how do I pay the $100000 for the deposit? Surely I would have to pay it back sooner or later.
    Is this information correct and is this what you have done in the past
     
  2. Hodor

    Hodor Well-Known Member

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    You get a second mortgage on your home which is used for the deposit. You repay it per the terms of the loan. Often an interest only loan is useful to maximise deductions.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    This is possible by revaluing your current home and getting 'cash out' of the property via a new loan split.

    For eg, if your current loan was $300k, and you could access another $100k equity (due to growth in the property for eg), you'd create a new $100k loan account that you could use to pay for the deposit and so on.

    You'd end up with $400k in total debt secured to your home, plus the loan on the new house. In effect, you're borrowing the whole cost of the new house.

    Being a loan, you do need to pay it back. It's a very common strategy investors use to avoid having to pay cash.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Yep - it's quite a common approach.

    Assuming you have one owner occupied property the general structure is:

    Owner occ
    Loan 1: existing loan
    Loan 2: equity release to cover deposit/costs on IP

    IP
    Loan 3: investment loan

    Cheers

    Jamie
     
  5. Stoffo

    Stoffo Well-Known Member

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    Jess is correct, you would be using the increased value of your PPOR.:)
    Or redrawing up to your original lend amount.
    (Just ensure you split/seperate the loans.
    Dont forget, you may need to prove you can service any new loan.
    Check out @Terry_w tax tips for some great tips also ;)
     
  6. Terry_w

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

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  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Be wary this isnt being a cross collateralised loan and set up like J J and T have suggested

    cross collateralisation is often best avoided because and oldie but goodie

    To cross or not

    and a few more issues since

    ta
    rolf