paying off loan

[neeko]

hey all nick here.

just a quick Q i have it has been boggling my mind for a while and a few of my mates aswell and we came up with a Q over a few beers.....


the question is this. "can you use your equity to pay off your current home loan"? i.e your PPOR

any advice on this would be great.


Nick.

 

[wylie]

If you are asking if you can draw equity from an IP and use the money to reduce your PPOR loan, then that would be a "no" because it is the purpose of the borrowing that is the crucial factor. So any drawing on the IP loan would not be tax deductible.

Hope I got that right .

 

[neeko]

no. im asking if i can use "my equity" from "my PPOR" to pay off my loan on my PPOR i think you can cause its your money and i dont see why not...

 

[The Y-man]

Nick,

Are you talking equity in IP's or the PPOR itself?

The Y-man

 

[neeko]

example.

if i have 250k loan and my house is worth 400k and i have 150k of equity can i use that 150k to put on my home loan to make my repayments lower.

 

[neeko]

i cant see why you can't do it.

Nick.

 

[neeko]

in PPOR itself.

 

[Propertunity]

Nick, the only way you can tap into that equity to release it as cash, is to take it out as a loan. Banks only want cash - they don't accept equity as a repayment method.

So go back to the beer and come up with another strategy.

 

[neeko]

thats stupid! how come thats the case???? its my money though. it doesn;t make sense


so i have to take out a loan to repay my own money? whats the point in having equity then if you cant use it like that...

 

[neeko]

so thats why people buy IP's so they can pay off there mortgage faster correct???

 

[Dawn]

example.

if i have 250k loan and my house is worth 400k and i have 150k of equity can i use that 150k to put on my home loan to make my repayments lower.

You will just end up borrowing 150k to pay $150k on your home loan, unless you sell your house and realise the equity.

 

[Propertunity]

Nick, you can get your equity into cash by either selling or refinancing:
1. If you sell for $400K, pay back loan of $250K, Nick walks away with $150K cash and he spends it - all gone & no house.
2. If he refinances @ say 80% LVR, he gets a loan of 80% of $400K = $320K. With this money he pays off his $250K loan and gets $70K cash to spend. Fine but he still owes the bank $320K.
*for explanation purposes only. Nick may not qualify for an equity loan, yadda, yadda.

 

[The Y-man]

so thats why people buy IP's so they can pay off there mortgage faster correct???

Nick,

We paid off the PPOR by SELLING some of our IP's after they had gone up in value, thereby accessing equity.

eg. Buy apartment for $200k with $180k loan, sell 10 years later for $400k, pay back $180k loan, and whack $220k (ok, ignoring CGT etc for now) into the PPOR loan.

Like I said above, the other way is to trade your PPOR - and this has the advantage of being tax free.

The Y-man

 

[Propertunity]

so thats why people buy IP's so they can pay off there mortgage faster correct???

Ahhhh..... NO.

 

[RumpledElf]

Wow.

People who don't know that equity isn't money.

Parallel - you buy a painting by some artist for $1000.
Then they die, and you see on TV that your painting is now worth $1M.

So does this mean you can check behind the painting for bank notes, or a big cheque arrives in the mail for $999,000? Nooooo you have to either go sell the painting to get your money, or go to a bank and get a loan secured by the painting.

Exactly the same thing applies for houses.

 

[neeko]

ok now i understand, so i'll have to buy a IP then cheers. my goal is pay off my house ASAP

 

[Propertunity]

ok now i understand, so i'll have to buy a IP then cheers. my goal is pay off my house ASAP

That's a noble goal Nick.

Yes, buy 1 x IP, wait for it to go up in value, sell, pay tax, use what's left over to pay off mortgage on PPOR, BUT:
1. Mortgage is only 30% of your outgoings normally. Once you pay it off, you still have to eat, pay for car, bills etc. So you still have to work for 70% of the expenses most people have. Buying 1 x IP is not a retire from work strategy.
2. Buying IPs can become addictive. Your expenses will increase to include boat, travel, etc etc. You will get a liking for more expensive beer
3. Your current circle of friends may begin to bore you, especially if they don't share the same enthusiasm.

Cheers,

 

[neeko]

the whole point of me doing this is so i can own my house so i can enjoy life by not living week to week this is my only debt so i want to pay it off asap

 

[neeko]

so then you own your house then you can work & travel how good it would be

 

[The Y-man]

Nick,

To give you some ideas about how we did it:
2000 - 2001 we bought 10 IP's and around 2009 we sold 6 of them.

We now have a PPOR and 4 IP fully paid off.

The Y-man