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From: Mike .


Quick one
From: David
Date: 8/2/00
Time: 10:23:06 AM

How many times can you use own home as security for IP? And how easy is it to take it off as security?
 
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Les

Reply: 1
From: Mike .


Re: Quick one
From: Les
Date: 8/2/00
Time: 10:14:59 PM

G'day David,

Here are your questions:-

David> How many times can you use own home as security for IP.

Answer> That depends on how much Equity you have in your home, and your current Income (including all Rents, Share dividends, etc). This is calculated by the Bank as your DSR (Debt Servicing Ratio).

In short, you might be able to borrow against your home for TEN deposits of $20,000 each - IF you have around $250,000 Equity in your home (i.e. you owe - say - $150k on a house worth $400k). You CAN'T borrow the full $250k though, that's why the figures don't quite "match up".

David> How easy is it to take it off as security?

Answer> My suggestion is to borrow against your own home from "Bank A" and do all of your IP borrowings from any lender EXCEPT "Bank A". That way, your home remains insulated from problems (as long as you always pay THAT mortgage ;^)

As property values rise, you can look at borrowing against IP#1's Equity instead of "own home" to buy the next IP .... etc. And continue paying down your own home mortgage as surplus monies permit.

And that brings up an interesting point - why have $400k Equity sitting "doing nothing" in your own home? So each individual will have a comfort level re borrowings against their own home. Maybe this is why many investors RENT a property (that way, they don't feel compelled to pay down their Home Mortgage and "waste" the money that could go into more IP's).

And time for a repeat of one of my favourite phrases (Can't remember who to give credit to -but not mine, unfortunately):-

"We pay a huge premium for wanting to own our own home!" With the Tax Deductions you DON'T get, and no tenants helping to pay for it, it's not hard to understand what they were getting at.

Hope this has helped.

Regards, Les
 
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