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When do you get your equity back?

Discussion in 'Property Finance' started by Krysta, 14th Feb, 2016.

  1. Krysta

    Krysta Member

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    Hi all... Possibly a dumb question but here goes...

    EG. I have PPOR valued 285k owe 200k. Use $20k equity as a deposit for IP.
    IP has been purchased for 160k valued at 240k.

    Loan structered as PPOR $200k and IP $160k. So no Seperate loan for deposit.
    Because the IP has significantly increased in equity, does the PPOR have its full equity back?

    Any insight to this would be helpful
    Thank you!!
     
  2. albanga

    albanga Well-Known Member

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    How did you pay the deposit on the IP? It sounds like you might have a crossed loan that has also been contaminated with mixed purpose. Hopefully I am mistaken but if so that's quite a mess.
     
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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You dont borrow equity but money. Tuink along these lines and it may be clearer
     
  4. Krysta

    Krysta Member

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    Deposit bond (as per the banks recommendations). Yep pretty sure they are cross collateralized... Currently working with a broker to fix this issue.
     
  5. Krysta

    Krysta Member

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    Thanks Terry, yes it does make sense, if I'm understanding right, so the bank sees there is equity which reduces their risk so they are happy to lend the extra?
     
  6. hobo

    hobo Well-Known Member

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    If your house is worth $285k and your loan against it is $200k, you have $85k equity.

    You go to the bank again and borrow another $20k against the equity. This increases your loan to $220k, and decreases your equity to $65k. Does this make sense?

    PS In the above example I use a single loan, but in real life you'd be best splitting off the second $20k amount as a completely separate loan, as others have mentioned above. This was just for simplicity.

    Edited to fix typos and to add: the only ways to "get your equity back" (ie for it to return to $85k) is for:
    - you to repay the $20k, decreasing the toal loaned against the property and therefore increasing the equity, or
    - have the market lift and now your house is worth $305k, so even though you still owe $220, the equity is back to $85k.
     
    Last edited: 14th Feb, 2016
  7. D.T.

    D.T. Adelaide Property Manager Business Member

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    To add to this, the bank wants to maintain 10% or 20% equity in the property.
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Based on this, you have $28k useable equity in your PPOR, and $32k in your IP, keeping your LVR's @ 80% to avoid paying any LMI.

    You have been x-colled (can't get a 100% loan without it), so once the loans are uncrossed you'll have 4 loans - 2 to replace the original loans, and another two for the equity in each property.
     
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  9. Krysta

    Krysta Member

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    Well the thing is my loan didn't increase to say the $220. It stayed exactly the same (200k) and the IP loan is the full amount of the purchase price of the IP (160k for example).
     
  10. hobo

    hobo Well-Known Member

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    ah yes I just realised you mentioned deposit bond above - sorry, missed that before. :oops:

    I've no experience with them so I'll let others explain!

    /useless contribution :D
     
  11. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    That's because of the x-coll. If they weren't x-coll, the loan on your PPOR would be $20k bigger, and the IP loan would be $20k smaller.
     
  12. Krysta

    Krysta Member

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    So that wouldn't work well for tax purposes but would it? Which is why you would opt to get another loan instead of adding it to PPOR?
    Thanks Jess
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You'd create a new loan split for the $20k rather than just making the PPOR loan bigger, so it would be easy for your accountant to work out deductions and no mixing of deductible and non-deductible purposes.
     
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  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Krysta likes this.
  15. Krysta

    Krysta Member

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  16. Allgood

    Allgood Well-Known Member

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    Hi all,

    I've let this thread sit for a few days so I didnt hijack the conversation, but in a similar vein what about the following scenario?

    If for example,
    IP cost $300000
    Loan against IP =$248000
    Separate loan against PPOR = $75000 for 20% deposit plus costs.

    If over time the IP increases to, say $420000, could you then combine the 248k and 75k loan to make a $323k loan against the IP. (76% LVR). Or does this have tax implications???

    The benefit of this would be to free up equity or pay down the dept on the PPOR, (and make your loan statements shorter :D.)

    Thoughts??