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which LOC?

Discussion in 'Finance & Banking' started by voigtstr, 3rd Feb, 2008.

  1. voigtstr

    voigtstr Well-Known Member

    Joined:
    24th Jan, 2007
    Posts:
    679
    Location:
    Hobart
    We own a villa unit that we owe 166K on. We bought for 180k. Its now worth between 200-230K (depending on who you ask).

    I'm thinking of getting a bank valuation. Which line of credit out there has the lowest interest rate and lowest fees?

    Is the LMI much of a killer if I wanted to borrow to 90%?

    The money would be going into either Navra (for income only) or a combination of Navra + CFS geared (for income with a bit more growth)

    The intent of the difference between the distribution and the LOC interest, would be to pay the negative gearing costs on the villa unit once we buy another home. Before buying the new home the difference would help towards saving the deposit.

    The wife wanted to use the equity to fund the deposit of the next house but then that wouldnt be tax deductable would it?
     
  2. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    Voigstr - the biggest hurdle regardless of chosen bank will probably be the valuation - 'cos the bank valuers will always err toward the lowest end of the scale. So its likely they'll come back with $200K if that's the conservative val., then at 90% they'll lend up to $180K - only leaving $14K diff on your existing loan.

    If you really want the dough, you could try funding a private valuation from a registered valuer (preferably from the same valuation firm on your chosen bank's panel) and get that written valuation first. Then provide that 'just for info' when the bank sends their valuer around. Your private valuation is more likely to aim for the higher end of the scale, and the bank will need to refute the registered valuer's expertise, which they can't really, particularly if the firm is the same one they use ;-) $230K at 90% gives you about $40K in addition to the current debt. (quite the mathematician tonight aren't I :) )

    If you don't pay down the $166K it will remain deductible if you turn the villa into an IP (assuming it isn't now). The money you free up in a LOC will be deductible if you use it for investment purposes - so while it is in Navra/CFS etc it will be deductible, when you draw it out and pay a deposit on a PPOR with it, it'll cease to be.

    Hope I understood correctly :p
    Cheers
    Carl

    PS if things don't go well with the property or the investments purchased, you could be in a very nasty over-extended position at 90% lend ... but I guess you are taking that into account ... :)
     
  3. voigtstr

    voigtstr Well-Known Member

    Joined:
    24th Jan, 2007
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    Location:
    Hobart
    Re the LVR...
    If the new value of the unit is 210k and we owe 166k then we are sitting at 79% I think (166/210=.79)

    The equity is 210-166=44k

    Now is it 80% or 90%(if we pay more LMI) of that 44k or is it 90% of 210k minus the 166k we already owe that determines the amount of equity we can get access to?
     
  4. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863
    They'll lend up to a total of 80% of what they say the value is (or 90% with LMI)

    so $210K x .8 or
    210 x .9 with LMI

    = total borrowings of either
    $168K or
    $189K with LMI

    meaning you have access to between $2K-$23K (less LMI) more funds if you can get bank to agree with the $210K val

    Make sense ?