I don't think you can get a LOC with a fixed rate, and the ability to redraw funds from it.
If you have 100k of useable equity to live off, you could arguably spend the whole 100k, but it is a LOAN and must be repaid at some stage.
The idea is that your properties' values go up more each year than you spend from the LOC, so when you get to the end of the IO period and have to refinance to go again, the properties are worth more than the debt.
The problem is that the Bank will want to see servicability and this could cause some issues.
Thanks for the reply!
AFAIK I don't think you can get a LOC with a fixed rate, but I just said fixed for the simplicity of the calculation for the interest payable.
"The idea is that your properties' values go up more each year than you spend from the LOC, so when you get to the end of the IO period and have to refinance to go again, the properties are worth more than the debt."
This is where I get a bit confused....
For simpicity sake I'm forgetting about LVR's and whatever else. Say I have a house valued at $200,000 and a $100,000 IO mortgage against it. I draw out the $100,000 in equity in LOC. So I still have a mortgage of $100,000 and keep making my IO repayments as I always have. But now I have a $100,000 5 year LOC loan which is secured again my house which I am now making my IO repayments towards.
Now, fast forward 5 years and I've spent the $100,000 LOC loan and I now need to repay the principal back. I don't want to sell anything to cover the LOC so I refinance my mortgage making it now $200,000 to cover the LOC loan and now (as I see it) I'm paying interest on that $100,000 LOC all over again???
Is that right?
So I guess if rents go up an average of 5% a year that will help compensate for the extra interest repayments over the period?
uhhh ... yeah ... I don't follow you at all..... a LOC that generates interest ???? I think I need one of those
. There's plenty of theads on LOE , maybe do some searching & reading.
LL
Ha, it'd be awesome if it earnt interest at 7.41%. But what I meant was the interest payable.
I tried to search "loe" but apparently that's too short and if I try using more than one word my computer can't handle it and freezes up.