# Refinance Invest Property & LVR?

I bought an investment property about 8 years ago for \$100,000 with 20% down. I refinanced recently so I could pull out equity to purchase additional properties. The property is valued at \$300,000 & the bank said they can loan up to 80% of the value (\$240,000). I did the refinance expecting to have \$240,000 of equity available for investment but I only have \$170,000 because the bank had to payout the original mortgage balance of \$70,000. So my LVR is not 80% but only about 55% since I still have \$130,000 equity tied up in the property. Am I missing something or is this how it works? I have read books & I thought 80% LVR meant 80% !!!

The \$170,000 figure is correct. When you refinance to draw down equity, the 80% LVR is the total amount available for all borrowings. So if you already have a loan of \$70,000, then only \$170,000 is available for new borrowings. The original mortgage balance of \$70,000 would not have been repaid - it's just taken into account when calculating your borrowing capacity.

Cheers
LynnH

equity and available equity are different things.

Lynn has explained that well

ta
rolf

And having \$170k in your wallet when you're shopping and borrowing against the other property should give you enough

Suppose you could always take the lend to over 80% for the additional cash if you needed it.

Thanks for your responses. My follow on question to this is: how then do I go about making available the additional equity that would allow me access to 80% of the value of the property (the full \$240,000 of the \$300,000 property value). I see this as if I just purchased the property & had to put 45% down instead of 20%, so I figure there must be a way I can access 80%. thanks

You might have to mortgage insure to 95% - assuming you can do a full doc to this level.

300000 valuation = 285
less existing debt = 70
available = 215

If this doesnt give you enough cash then you may need to get a new lender and valuation done where it gives you the \$ --- if that is possible

Questions
what the price of the new property
Full doc or low doc

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So are you saying the only way I could access the full \$240,000 (80% of the \$300,000 property value) is if I had bought this property today with 20% down?? That is, there is no way to get my LVR to 80% through re-financing??

What you seem to be looking for is 240k in new funds plus 70k = 310k

Thats more than what your place has valued for

But if the loan is 310k you dont have the security to support the debt with a 300k property.

In order to get 310k you need to get your valuation up / the property revalued to about 326,500 in round numbers at a minimum but that will take you to a 95% lend so you'll have mortgage insurance... also assuming you can do this as a full doc loan too.

If you're trying to avoid mortgage insurance to keep things at an overall LVR of 80% then the place has to value to about 387,500. Or maybe an 85%er thru ING or Westpac (if it fits) would do to bring the valuation amount down.

Why are you putting 45% into the new one anyway?

All I am looking to do is to get my LVR to 80%. I wasn't putting in 45% down but I used this to illustrate that by refinancing, I was only able to access 55% of the equity because of the existing loan whereas if I were to buy this same property today for \$300,000 , I would only require to come up with \$60,000 (20% down payment) & be able to borrow \$240,000. I would like to re-finance to get to the point of a \$240,000 loan just like I would if I were purchasing today. It seems I am being penalized for re-financing by not being about to get to an 80% loan on the full value of the property. I thought as property prices appreciated, I could keep pulling out equity as long as I kept 20% equity in, the banks would be OK.

Hiya New

But you can refinance to a total loan amount of 80 % that being 240 000 available.

But you still owe the 70 000 so.............

Part of the 240 will then be used to pay our your existing loan of 70 000

Total available is 170 000 as you have worked out.

If you SOLD, ignoring commissions etc youd get 230 000 in hand.

If you then bought it back at 80 % LVR youd need to out in 60 000 put of the 230, thusleacing 170 000 available.

ta
rolf

Thanks for your responses. My follow on question to this is: how then do I go about making available the additional equity that would allow me access to 80% of the value of the property (the full \$240,000 of the \$300,000 property value). I see this as if I just purchased the property & had to put 45% down instead of 20%, so I figure there must be a way I can access 80%. thanks

Maybe if you pay back the \$70K still owing from the original mortgage, they will happily lend you the "missing" \$70K. Otherwise you're asking for a \$310K loan on a \$300K house (outstanding \$70K + new \$240K). That's why the lender is only giving you \$170K, because your starring point is -\$70K this time, not \$0 as it was the first time.

Please understand that by lending you \$170K that you are NOW 80% LVR (outstanding \$70K + new \$170K = \$240K = 80% LVR), because you will now owe the bank \$240K on a \$300K property. You won't get your missing \$70K until you pay it back to the lender.

You won't get your missing \$70K until you pay it back to the lender.

Or the house goes up in value circa what is outlined in my prior post.

Or the house goes up in value circa what is outlined in my prior post.

No. He still has to pay the money back or keep owing the bank. It doesn't magically disappear because the value of the house has gone up. He is transferring a 80% LVR on a \$100K IP to 80% LVR on a \$300K propery - leaving him with \$170K (\$240K - \$70K) in equity. The property can rise in price 1000000% (7-10 yr average) and he still owes the bank the original \$70K until he pays it off. He can pay it off with the equity he's gained, which he is effectively doing, but that debt remains part of the equation.

EDIT: The point is he still owes the bank \$240K on a \$300K house after getting \$170K in additional equity.

But as a result of the re-finance, I did pay the original loan off & now have a loan of \$170,000 which is still short the \$240,000 I would have if I had purchased the property today. So my current LVR is 55% (\$170,000/\$300,000) & not 80% had I purchased a property today. By re-financing, I have to keep \$130,000 equity tied up in the property instead of a \$60,000 deposit on a regular purchase. Is there ANY way I can have a loan of \$240,000 on this \$300,000 property???! (LVR = 80%)

in the original post, you said the bank paid out the original mortgage balance which was \$70k.
So from reading this it would appear that if the new loan was \$170k and the bank used \$70k to repay the existing loan for whatever reason then you would have \$100k remaining. If the bank never repaid the loan of \$70k then you should have the full \$170k available.

If the property is worth \$300k and you want to borrow to 80% or \$240k then it seems it would be a matter of increasing the existing loan from \$170 to \$240k so you'd then have \$170k available.

I.e. your loan amount should have been \$240k instead of the \$170k or the \$70k never should have been repaid.

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Hi all,

Maybe I'm missing something, maybe you are, but simply put, the maximum amount of ALL loans against the property can only be \$240,000, if the LVR is 80% and the property value \$300,000.

If the only loan you now have against this property is for \$170,000 then your leverage is 56.666%.

As others have clearly stated, the \$170,000 the bank will give you plus the \$70,000 they used to pay off the old loan, brings the total leverage up to 80%.

What is the TOTAL amount of all loans held by the bank/banks against the value of this property???

bye

I thought by re-financing I would have a new loan of \$240,000 (accessing up to 80% LVR) but instead I have only \$170,000 loan after the \$70,000 from the original loan was paid. I will re-phrase my original question: "Will the bank let me loan up to \$240,000 of this \$300,000 value property??" I thought they would as long as I had 20% equity still in the property. I hope I have clarified my question enough to pretty much get a yes or no answer. thanks!

Hiya

Yes its an 80 % lend

Overall the bank has lent you 240 000 on that security, which is 80 % LVR, leaving in 20 %.

What is the current balance of the loan please ?

ta

rolf

Your TOTAL loans outstanding of \$240,000 IS 80% LVR of \$300,000.

If your original loan was \$70,000, then you went to borrow \$240,000 to have an 80% LVR, the bank gave you \$170,000 and paid off your other loan of \$70,000.

You're still owing the bank \$240,000 which is 80% of \$300,000

bye

The Bank will lend you up to a total of \$240,000 @ 80% LVR on your property valued at \$300,000. By definition, if you borrow 80% of a property's value you still have 20% equity left in the property.

Since you already had an existing loan of \$70,000, the total available loan amount of \$240,000 must be reduced by the amount of existing borrowings, therefore the total available for new loan/s is \$170,000. You could look at this in 2 ways:

Borrow \$240,000, Bank takes \$70,000 to repay existing loan, you have \$170,000 left.
or
Total loans cannot exceed \$240,000, since you already have a loan of \$70,000, then you can only borrow a maximum of \$170,000.

The only way around this is to borrow at a higher LVR (if you can get it) or provide the bank with more security (e.g. another property) against which they can lend.

This is really quite straightforward - and the Bank isn't trying to 'dud' you.

Cheers
LynnH

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