Using equity to purchase another property

Hello,

I just paid off my first house. I want to access the equity to fund the 20% of the next house purchase because I only have enough capital for the stamp duty ~$30K

In my scenario, would you obtain a equity home loan for the 20%, and the 80% is funded by another home loan?

I'm planning to use the rental to cover the 80% loan and my wage to cover the 20% equity loan. Is this how people are doing it?

 

See my thread:
Terryw’s Ideal Loan Structure Terryw’s Ideal Loan Structure

There are 2 ways you could structure this:
1. Borrow 105% secured by a mortgage over your PPOR,
2. borrow 25% secured by your PPOR, and 80% secured by the new property

Actually there is a 3rd which should be avoided:
3. Borrow 105% secured by both properties.

I would probably go for option 2, but it would depend on the situation. If you are buying under market value then maybe 1 would be better and then shortly after restructure.

 

I don't understand in Step 5 of your thread mentioning paying stamp duty with cash will incur higher interest on the PPOR loan. Can you elaborate? because my understanding is that, the more you borrow, the bigger the loan, thus higher interest.

 

You should ask in that thread.

If you pay stamp duty on an investment property with cash that is less cash in your offset on the PPOR/less off the PPOR loan.
This means higher PPOR debt and lower investment debt.
This means more tax is payable.

 

Hiya

Are you purchasing an investment?

If so -why not take out enough equity fund the costs as well? Stamp duty, etc.

Also - if you intend to purchase more than one property in the future then consider releasing more equity now (rather than later).

Cheers

Jamie

 

Agree with Jamie.
If I were you, I will cash out as much as possible for the next (few) investment purchase(s) + cost.

 

Agree with maximising funds & structure for future - flexibility is worth more than a small rate saving

 

Looks like we're all in agreement. Grab what you can - if it's enough to cover the deposit and purchase costs (stamps etc) great. If it's more than enough, even better - you'll have a big cash buffer and more equity for future use, should you so desire.

Don't forget you've paid tax on your cashing savings – replacing a dollar of savings requires earning much more than a dollar, then paying tax on it.