Line of Credit Limit

Hi All,

I am currently applying for a LOC to ensure funds available for any opportunities which may arise over the next 12 months.

My PPOR is valued by bank at $445k
Loan Balance is $157k
Redraw facility has $69k in it

Salary details for me and wife around $130k

The bank is saying with mortgage insurance they will set-up a limit of just over $200k which surprised me as if you take 90% of PPOR and subtract the loan balance and redraw facility you get around $175k.

Has the bank simply placed more reliance on our salaries in determining servicability as I thought they usually give you the lesser of what you can service by income and what equity is available?

Also, if we choose to pay mortgage insurance to increase the limit available, how is this charged? Do we have to pay it upfront or is it merely "capitalised" somehow?

Thanks!

Zargor
 
it depends if the bank is reducing your redraw
lmi varies depending on the bank. Some capitalise and some take it out of loan proceeds (more now than before it seems...)

Think you're a cba'er so it would get capped
 
Sounds to me like your local Bank johnny hasnt factored in the redraw and has merely taken 80% of the valuation less the current loan balance.

You will notice the redraw disappear.

At 80% lend it is unlikely if you are with a standard lender that you will be charged LMI so wont apply.
 
Thanks Saint & Richard,

I agree, Richard - sounds like they they haven't taken into account the redraw facility or have automatically assumed that it will disappear - an assumption I will be quick to dispel.

Zargor
 
You will find this is conditional on the property you buy which they will have the title.

When I requested a LOC on my home with a $25,000 mortgage. Property value $550K (I think) they would give me $700,000. They wouldn't transfer any money over until I purchased a property. They have the title. Unfortunately I did this before I knew any better. Working on releasing the IP title now as I want to sell my PPOR in the future.

Better to get a smaller LOC so it's not conditional on purchase. Use the LOC for deposit only and get a separate loan for your purchase.
 
Cross securitisation

You will find this is conditional on the property you buy which they will have the title.

When I requested a LOC on my home with a $25,000 mortgage. Property value $550K (I think) they would give me $700,000. They wouldn't transfer any money over until I purchased a property. They have the title. Unfortunately I did this before I knew any better. Working on releasing the IP title now as I want to sell my PPOR in the future.

Better to get a smaller LOC so it's not conditional on purchase. Use the LOC for deposit only and get a separate loan for your purchase.

......GREAT ADVICE. I'm thankful that I had done a fair bit of reading before applying for my LOC. The bank was keen to offer me a large pre-approval for a Portfolio Facility to include the actual loan for the 80% part of the IP. I knew this was a trap because the IP and PPOR would be cross securitised. Then in 5 years when the product is no longer as competitive compared to others in the market place - its hard to get out. And, if you want to expand, you have to get you whole portfolio valued. And if you dispute the valuation you have to transfer the entire portfolio to other lenders - a mess.

Just use the LOC for the deposit, entry costs and negative gearing short fall. Apply for a seperate loan (probably - but not necessarily) through another lender for the 80% (or 90%) of the loan for the IP. Keep it seperate.

Cross securitisation is the cardinal sin of lending!

Read: "Smart Borrowers Handbook" by Stuart Wemyss. Very useful.
 
Thanks People,

The purpose for the LOC was purely for deposits and as you say, Tim, balance of any IP or other invesment purchase ideally through a separate lender to avoid cross-collateralisation.

I would not be using the LOC to fund the actual purchase of properties, even if they offerred to increase limit to do so. I prefer to have a bit more control.

Zargor
 
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