Equity Line of Credit

[MSK]

A few months ago, I had posted for some opinions on the advs/disadvs of selling our IP which used to be our PPOR (we have just hit the 6 year mark). I am now thinking that instead of selling, I should get some equity out of the property into a LOC. At the same time, will request a LOC against our current PPOR.
IP worth $820k, loan balance is $500k
PPOR worth $820k as well, loan bal is $420k (with $125k in redraw, and $30k in offset (savings account)), so we are actually only paying interest on less than
300k. Ordering a reval this week, last val was in 2008.

current net household income is $10k per month.

My question is: are values of LOCs determined based on equity AND serviceability (current income), or just the equity ? What happens if in the future, the LOC facility is available (approved), but income situation changes ie. less income ? Will the bank adjust the LOC balance at that point in time ?

 

[jonmardell]

The line of credit application will be based on both the valuations of the properties and the income. You will need to be able to service the total debt limits. Is the 10k monthly income including rent from the IP?

A few months ago, I had posted for some opinions on the advs/disadvs of selling our IP which used to be our PPOR (we have just hit the 6 year mark). I am now thinking that instead of selling, I should get some equity out of the property into a LOC. At the same time, will request a LOC against our current PPOR.
IP worth $820k, loan balance is $500k
PPOR worth $820k as well, loan bal is $420k (with $125k in redraw, and $30k in offset (savings account)), so we are actually only paying interest on less than
300k. Ordering a reval this week, last val was in 2008.

current net household income is $10k per month.

My question is: are values of LOCs determined based on equity AND serviceability (current income), or just the equity ? What happens if in the future, the LOC facility is available (approved), but income situation changes ie. less income ? Will the bank adjust the LOC balance at that point in time ?

 

[jonmardell]

the bank will not lower the LOC if your income drops. Is there a reason you think the income will drop in the future?

My question is: are values of LOCs determined based on equity AND serviceability (current income), or just the equity ? What happens if in the future, the LOC facility is available (approved), but income situation changes ie. less income ? Will the bank adjust the LOC balance at that point in time ?[/QUOTE]

 

[Peter_Tersteeg]

A line of credit is just another loan with some particular features, the same way a fixed loan has a few features. The qualifiers aren't different to any other type of loan.

They are limited on the amount of security available (equity) and your ability to make repayments (affordability).

If your income changes with any residential loan, it's unlikely that the limit will be reduced, although the LOC features do tend to make this easier to execute than other loans. When you apply for an loan, one of the questions answered by the broker or banker for compliance purposes is if there'll be any changes in the near future that will affect your ability to service the loan.

If you want the loan application to be successful, regardless of loan type, I'd suggest that you should answer no, there are not expected negative changes to income.

 

[MSK]

the bank will not lower the LOC if your income drops. Is there a reason you think the income will drop in the future?

My question is: are values of LOCs determined based on equity AND serviceability (current income), or just the equity ? What happens if in the future, the LOC facility is available (approved), but income situation changes ie. less income ? Will the bank adjust the LOC balance at that point in time ?

[/QUOTE]

Thanks for the replies.

The reason for the possible income drop is that I am looking to leave my job to ramp up a work from home business. The resulting income (in the short term) would be lower than our current total.

The $10k/month does not include the $36k/year rent we receive from the IP.

 

[jonmardell]

as a rough estimate without having the full details you should be able to borrow up to 80% of the property valuations based on your income.


Thanks for the replies.

The reason for the possible income drop is that I am looking to leave my job to ramp up a work from home business. The resulting income (in the short term) would be lower than our current total.

The $10k/month does not include the $36k/year rent we receive from the IP.[/QUOTE]

 

[Aaron_C]

If you want the loan application to be successful, regardless of loan type, I'd suggest that you should answer no, there are not expected negative changes to income.

What about NCCP Pete? I read that now we brokers have to call employers to verify clients' employment details to satisfy that

 

[Peter_Tersteeg]

What about NCCP Pete? I read that now we brokers have to call employers to verify clients' employment details to satisfy that

Not if you read today's update. Verification of data is scalable depending on the circumstances.

http://www.brokernews.com.au/news/b...-employment-verification-quagmire-174470.aspx

I dare you to answer "Yes" to the loss of income question even if you can mitigate it. Credit scoring will kill the deal instantly!