Pulling equity out of your home

Discussion in 'Loans & Mortgage Brokers' started by The Brain, 6th May, 2008.

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  1. The Brain

    The Brain Member

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    Curious whether anyone else has pulled out equity out of their home/PPOR. I've got a $360K apartment with $160K owing to ANZ. With $200K value tied up in the property, how does one take advantage of that ?

    Can you get a better interest rate than the standard margin loan rates ?
     
    The Brain, 6th May, 2008
    #1
  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    (I split this post into a new thread rather than leaving it as part of that very old thread you posted in)

    I generally pull out the increased equity every 18 - 24 months for my properties.

    There's a number of ways to do it - many people use a LOC (Line of Credit) which just gets extended by the bank up to around 80% of the current value of the property.

    Personally I prefer to set up a new "top up" loan facility - just a plain and simple IO loan with a good rate and no frills. This means I sometimes have 2 or 3 (sometimes more) loans against a property - the original loan (eg. $200K) plus several top-ups (typically $50K - $100K each time, depending on the amount of growth). Every so often I'll refinance the lot to a new loan if there's a better deal going (and to cut down on paperwork!)

    In your example, provided you have the servicability - you should have no problems getting a top-up loan for 80% of that $200K of equity (ie $160K) ... or more if you are prepared to pay LMI.

    These loans are at standard residential mortgage rates - much cheaper than margin loans.
     
    Simon Hampel, 6th May, 2008
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  3. tailcat

    tailcat Well-Known Member

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    Assuming that you are going to use the equity for investment purposes, you MUST, for tax deductibility purposes, ensure that the new money you borrow is in a different account to your current ($160k) PPOR loan.

    Also, assuming that the current loan is a simple P&I loan to which you have never done a redraw for personal benefit, you might consider converting it into a basic IO loan with 100% offset account.

    Tailcat
     
    tailcat, 6th May, 2008
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  4. The Brain

    The Brain Member

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    Appreciate the feedback. Definitely seems like a smart way to structure things. Time to talk to the accountant.
     
    The Brain, 6th May, 2008
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  5. crc_error

    crc_error The Rule of 72

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    I wouldn't recommend using a margin loan on borrowed funds.. your gearing a little to high in my opinion..

    Just invest the borrowed money into un-margined funds or shares... or use it for another IP.. but if you don't have any shares now, and only property, it would be suggested to diversfy into the market.. shares are on sale now.. but quickly going back up to full price..
     
    crc_error, 7th May, 2008
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  6. The Brain

    The Brain Member

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    Yeah, wouldn't be adding a margin loan on top of that to start with, and if I did the gearing would be <50%.

    Really my interest is just comparing a 2nd mortgage against the property vs a margin loan. Was all set to go ahead with the margin loan and then realised the property will provide more capital at a lower rate and there's no threat of margin calls. Why doesn't everyone do that ?

    No shares now, and am finally making a lot of money contracting, so want to make the most of it.
     
    The Brain, 7th May, 2008
    #6