Interest Only Fixed - Can I get Equity

[Queen Bee]

I was reading a mortgage broking website yesterday and it said something about if you have an interest only loan on a fixed term and you want to access the equity it will mean that the loan will be broken and you will have to pay quite alot of money.

Is this right? I've just bought my second IP and I have it secured against my PPOR. In order for me to get the security taken off my PPOR I must have enough equity (which I already have) in the IP. For example bought for $92,500 so need at least $18,500 equity (equivalent of 20% deposit).

The mortgage lender at the bank never told me this, and I'm a bit worried now, well I'm really worried, because it's fixed for 5 yrs.

 

[Simon]

QB,

If you break a fixed term loan (by refinancing or selling) then you will have significant break costs - unless of course the interest rate is lower than the current variable rate.

If you just want the IP to stand alone without being secured against your PPOR when the value rises enough then this shouldn't incur any costs.

Give the bank a call on Tuesday and confirm this.

Cheers,

 

[Queen Bee]

Cool bananas!

Thanks, I was worried there for a while. I tend to get myself into a real tizz about "things".

 

[Rolf Latham]

Hi QB

Dont believe evrything you read.

Simply ADD a loan to pull that equity and leave the fixed rate loan standing.

Ta

rolf

 

[Les]

G'day QB,

Fixed loans are a nightmare if you break them. But, in your case, you would leave the Fixed Loan in place, and take an extra loan (equity loan, either as LOC, or just a variable rate Equity Loan).

The main point is that this will be an "additional" loan, and not a "refinance of the existing (Fixed) loan" - a bit like a second mortgage really. But, you'd do it with the SAME lender once you fit their parameters.

Negatives? Well, maybe - you say you have equity in your IP - let's take an example:-

Fixed Loan $80000 - value of IP $110,000 - Bank will lend to 80% no problem. Loan on PPOR $12000. Now, at 80%, Bank will lend up to $88000 on your IP - not quite enough to repay the $12000 on your PPOR. But, If IP value is now $120,000, then 80% is $96,000 - which repays the $12,000, and leaves $4000 to cover any Application Fees, Mortgage costs, etc.

So, it depends on HOW MUCH equity you now have in your IP.

Of course, if you are happy to pay LMI, you can maybe get a 90% loan (so, in the example, they will lend to $99,000 on the IP - and you "kick in" the $$ needed for the LMI as well as other costs). So, it still can work.

The main thing is take a separate loan for the extra amount (and there may be some Bank limitations to this - so, as Simon says, check with your Bank, and push them to find an answer that suits you - just DON'T go breaking that Fixed Loan, no matter WHAT they say....)

Regards,

 

[Timmsi]

Hi,

We did this recently with one of our properties, had a three year fixed rate interest only loan on the property.

After renovations we went back to the same bank and applied for an additional LOC. Thus we were able to get 80% of the new value minus the loan we already had as the LOC

Now this gives us the deposit for the next IP!

Peter

 

[Les]

G'day QB,

{quote]I tend to get myself into a real tizz about "things".[/quote]

Hehe - have you noticed that "tizzes" usually come from some "new" information that you maybe hadn't thought about before? But often, there is OTHER new information that makes it ALRIGHT!!! And, sometimes, "new" information is not always right.......

In the end, it all comes down to "the more you educate yourself, the less 'tizzes' you get into". Just keep on reading, and asking, and learning - life gets easier as time goes on (usually )

And, can I say, you're doing ALRIGHT!!! Good to see you here,

Regards,

 

[Peter Noake]

Listen to Rolf - he's right. You can stack up a load of different loans against the one property. I've done it before, and will do it again.

For example, on one property I own, I have a Defence Home Owner's Loan (very cheap subsidised interest), a larger 1YR Fixed IO, and a small LOC which was set up to get hold of new equity - just perfect to jump into that great new opportunity that presents itself all secured against the one property. Effectively a super-split loan which gives me the best finance solution.

Pete

 

[Peter Noake]

Oh, BTW - don't let the bank cross-collateralise your PPOR with your IP. Bloody thieving bastards will try to get hold of all your security under one loan. Make sure you have separate loans secured against each property.

Sorry if it too late for you to prevent them from X-Coll.