Finance

[WebBoard]

From: Mike .


Home Equity - How does it work
From: Rae
Date: 04 Feb 2001
Time: 17:25:11

I keep getting told that no question is a dumb question, so here goes! I have been to a number of financial seminars, where the use of home equity is the ideal way to purchase more IP's. Unfortunately, I have not had the actual workings explained to me. I am currently getting restless to buy another IP, but am unsure of how close I am to to that commitment. I was hoping someone could explain some figures I am currently working on:

Property 1 - value $125,000 loan owing $98,000 negatively geared by approx. $20/wk
Property 2 - value $80,000 Approx. $6,000 cash for legal expenses.

Q. How is the minimum equity required amount worked out?
Q. How are the loans set up & are both properties placed as security over the second loan?
Q. Does the 1st loan increase? or is the 2nd loan for the total amount borrowed?
Q. Is this scenario viable?

Comments appreciated.

Rae

 

[WebBoard]

Rolf

Reply: 1
From: Mike .


Re: Home Equity - How does it work
From: Rolf
Date: 04 Feb 2001
Time: 19:26:48

Hi Rae

Plenty of questions. Good to read !!

Please contact me on [email protected]

Feel it would be worth your while to have a chat. You need to find yourself a finance broker that will provide both product and easy going education.

Ta - Rolf

 

[WebBoard]

Mike

Reply: 1.1
From: Mike .


Re: Home Equity - How does it work
From: Mike
Date: 05 Feb 2001
Time: 01:56:09

C'mon Rolf, don't kill this forum. Can you answer some of this online, please?

Regards, Mike

 

[WebBoard]

Rolf

Reply: 1.1.1
From: Mike .


Re: Home Equity - How does it work
From: Rolf
Date: 05 Feb 2001
Time: 14:33:58

Hi Mike

Fair Request !

I'll sit down for some scribbles (novel) later tonight. It is just easier to do verbally, but after all this needs to be a two way street.

Regards, Rolf

 

[WebBoard]

Rolf

Reply: 1.1.1.1
From: Mike .


Re: Home Equity - How does it work
From: Rolf
Date: 05 Feb 2001
Time: 23:04:55

Hi Rae

The simplest way to see if you have the option of going for another property from the equity point of view is to simply add up all the loans and costs. Then add the the total value of all properties. Then divide the total loans by the total value and multiply by 100 to get a %.

In this case (187 000 in loans and costs divided by 205 000) times 100 = 91 %. (loan to valuation ratio or LVR). As a general rule < 80 % means no mortgage insurance payable, this model is 91 % so dig deep. Note that mortgage insurance protects the lender NOT you.

Investment loans with LVR > 90 are around but your range of lenders is very restricted.

Also at that level of LVR the rest of the deal better be pretty tight such as good income, stable income history etc.

This would be feasible, BUT there would be a mortgage insurance premium to pay of between $ 3000 and $ 4500, which you can add to the loan in most instances.

Setup of the loans can vary, although in this case it is easiest and maybe most cost effective to secure one property against the other - ie one lender holds 1st mortgages on both props (cross collateralised) . In my opinion not preferred due to future flexibility but not a whole lot that can be done in this instance YET.


Hope this helps Rae - will call you Tuesday.

Hope I have redeemed myself Mike.

Ta - Rolf

 

[WebBoard]

Mike

Reply: 1.1.1.1.1
From: Mike .


Very eloquently, indeed!
From: Mike
Date: 06 Feb 2001
Time: 12:55:14