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Equity built in PPOR to be used to fund IP with different lender

Discussion in 'Real Estate' started by amsaini15, 11th Jun, 2010.

  1. amsaini15

    amsaini15 Member

    Joined:
    11th Jun, 2010
    Posts:
    11
    Location:
    Sydney
    Hi Guys
    I am interested in knowing if you have been able to use equity in existing PPOR with another lender (e.g Myrate) to fund 1st IP purchase with different lender (e.g CBA) . I am having some difficulty procuring Investment loan for my first IP. My current situation is:

    Loan Amt left on my PPOR - $193,000
    Lender for my Current property - My Rate
    Current valuation of existing property as per Residex Report - $325,000

    Investment property purchase price - $320,000
    Possible Weekly Rent return - $370.00

    My Gross Yearly Income - $66,000
    My partner Gross Yearly Income - $18,000
    Limit of all Credit Card (1) - $ 5300
    No Personal Loan, No car loan.

    What do you think? Am I able to use equity built on my PPOR (approx $130,000) to fund IP with different lender. CBA is telling me they can use the equity only if both properties are with them. Is this true? What is the way around. I dont want to break with Myrate for my existing property and also dont want to pay 10% deposit for my IP to CBA.

    Thanks
    Aman
     
  2. jrc77

    jrc77 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    147
    Aman,

    To use the equity in your existing place you will need to increase the loan limit on your current loan (or ideally have a separate loan account secured against the same property) with your existing lender.

    Then use this money as the deposit to a completely separate loan with lender of your choice.

    So with existing lender:

    Loan Acc 1 $193k
    Loan Acc 2 $67k (to take the total borrowings on this security up to 80% LVR)

    Then with new lender, provide the $67k as deposit for new purchase:

    Loan Acc 3 $253k (new property minus $67k deposit). 80% lend.

    Note this doesn't figure in any purchasing expenses (stamp duty, legals, etc).

    You will need to find some extra money for purchasing expenses or go above a 80% lend on the new loan.

    As for if a bank will lend you this money on your current income - you will need to talk to a mortgage broker.

    Hope this helps.

    Regards,

    Jason
     
  3. amsaini15

    amsaini15 Member

    Joined:
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    Location:
    Sydney
    Thanks for your reply, Jason.

    Actually I do have cash for deposit but I dont want to pay any deposit for maximum tax benefit (Interested in 100% loan). Withdrawing $67k from existing loan as deposit for new purchase will make me loose any tax benefit on 67K deposit.
    This solution will get me loan approval but dont think this will be the best solution. What do you say?
     
  4. jrc77

    jrc77 Well-Known Member

    Joined:
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    If you did as I suggested above, the loan interest on loan acc 2 and 3 would both be deductable -so 100% of the purchase price. In fact if you paid stamp duty and some of the other ip purchase expenses out of loan account 2 you could get approx 105% of the purchase price deductable.

    Note deductability is determined by what you use the funds for- not what it is secured against.

    Regards,

    Jason
     
  5. amsaini15

    amsaini15 Member

    Joined:
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    Location:
    Sydney
    Jason,
    I understand what you mean. Not that I dont trust you but I will verify this with my CBA broker as well. Do you know any ATO website link that imply this. I just need to be sure of this.

    (I sometimes wonder why dont this brokers tell you about all options available. My broker told me only way is to pay deposit on new property as equity cannot be used from existing property...and I thought he was knowledgable)
     
  6. amsaini15

    amsaini15 Member

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    Location:
    Sydney
    Also please advise how is this different from setting up an LOC with existing lender. What are the pros and cons of topping up loan and use as deposit and setting up LOC. I am assuming both are tax deductable 100% of purchase price.
     
  7. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    Aman,
    Did you get better answers from this site than propertyinvesting?

    Many brokers are ex bank people and understand banks and loans. They know what they need to do to obtain a loan and in the easiest way possible. They do not understand tax or finance strategies that help you.

    Greg
     
  8. amsaini15

    amsaini15 Member

    Joined:
    11th Jun, 2010
    Posts:
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    Location:
    Sydney
    Greg, I am just amazed at the Overwhelming response I got from these sites. It really helped me a lot as a 1st timer. PropertyInvesting had more responses and Invested had more thorough explanation for a newbie like me. But In the end experts from both sites have provided same solution which is good to know.

    Everybody here on these forums are doing excellent job. I wish them all best of luck in Life :).