Confused???

[voodoo]

I am very Confused

I have an IP Interest only (6.59%) on 175k and currently getting $290pw. I have had this property since 2002 and it is now worth approx 300k.
My PPOR is worth approx 360k (7.34%) and I have a line of credit for 125k, currently owing 115k.

I had a meeting with the bank today to find out what my borrowing capacity is at the moment, as i am very keen to grab another IP in the near future.

I currently work my LVR out at 43% and my DSR at 59%. (72k wages, 15k rent)

My frustration is that i have been in this predicament for the past few years where i have capital but not cash flow.

The bank told me this again today.. i have equity but can't service another property... even to borrow 100% of 250k getting 290pw rent is not possible for me to service. But they did offer to raise my LOC to 225k. I do not understand this
my LOC is bad debt with no income and no capital growth, where as a 250k IP with income of $290wk is a better option, in my eyes.....can somebody please explain this to me??
thanks

 

[Rolf Latham]

Hiya Voo

ARe u saying you cant afford another place because of cashflow ?

If thats right then its good that the bank doesnt want to extend another loan.

ta
rolf

 

[voodoo]

I agree Rolf...

but My question was, that i am confused about the LOC....

the LOC would cost more to hold than the IP.

If i take the 220k LOC and use 220k of it at 7%, i will be up for $15400 in interest..on my no cash flow..Right???

but if i borrowed 250k @ 7% IO this is $17500pa but rent would return $15080 so i would only have to cover $2420....right??? or am i looking at this wrong???

thanks

 

[Rolf Latham]

Hiya

Part of the reason

1. ALl funds borrowed ( either for loc or purchase) are "usually" assessed at PI and 1.5 actual rate.

Rental income is usually discounted to 75 % of actual .

Your current LOC is 125 so taking it to 225, the net actual serviceability required would be less than buying another IP at 250k new borrowings

ta
rolf

 

[sash]

Lets do the maths the old fashioned way to find out your maximum borrowing capacity:

1. max loan set at 40%
2. LOC included in loan outstanding amount
3. Rents taken at 80% of total

So based on that:

72k (income) + 12k (IP1 @ 80%) + 12k (IP2 @ 80%) = 96k

40% of 96k = $38,400

So if you borrowed money at an average rate of 7.25%...you can borrow approximately $480k.

So if you want to borrow $675k (includes LOC amount)....you are short by $195k.

Once rates go sub 6% you will be in a better position to borrow.

 

[moyjos]

OOOOHHHH Sash

I like that formula... do you have an Excel calculator for that??

Might save my poor hassled broker from a ton of emails from me

 

[ethereal]

Is there a possibility of getting a lodoc loan?

 

[sash]

I don't have an Excel calculator...but there are calculator in some of the finance and bank web sites. I did manually.

OOOOHHHH Sash

I like that formula... do you have an Excel calculator for that??

Might save my poor hassled broker from a ton of emails from me

I think the banks have tightened here also...I think your issue is serviceability.
They are now looking at this.....I would wait till rates come down a bit. No hurry....the market is going nowhere with all the bad news.

Is there a possibility of getting a lodoc loan?

 

[want2bewealthy]

Id see a good mortgage broker, I had problems with others but no probs with more loans with my new one.

I suggest talking to three or four over the telephone and briefly explaining your situation, one might say no, the next will probarbly say 'how much do you want?'

because If Im still getting approved for loans then you sure should be, with rates also dropping your servicability will increase also.

 

[Miss V]

Unbelievable.... so the bank is willing to give you more money on the LOC to possibly spend on doodads, with no income production? But won't entertain the idea of a seperate investment loan?

Go get a decent mortgage broker!

 

[Jamie_D]

Hello Voodoo

Please provide further information to enable me to calculate your lending capacity.
1) do you have any dependants?
2) please provide credit card limit(s)
3) do you have any other debts, ie p/l?
4) what would be the proposed rent on new IP?
5) any other incomes?
6) what bank are you currently with?

Cheers

 

[Gools]

Would removing the current LOC ease their concern?
Is the LOC seen as a debt when they do the calculations even though you haven't drawn on it?

Gools