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Using equity to purchase another property

Discussion in 'Property Finance' started by DingDong, 14th Jul, 2016.

  1. DingDong

    DingDong New Member

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    14th Jul, 2016
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    Sydney
    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?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
  3. DingDong

    DingDong New Member

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    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.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
    TaylorChang likes this.
  5. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    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
     
    TaylorChang likes this.
  6. TaylorChang

    TaylorChang Well-Known Member

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

    Alex Straker Financial Life Coach Business Member

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    Gold Coast, Australia
    Agree with maximising funds & structure for future - flexibility is worth more than a small rate saving :)
     
  8. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    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.