Refinance Invest Property & LVR?

[Sunder]

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'm kind of amused by this. I'm taking up the GHPC challenge to explain this in as simple terms as possible.

The property is worth $300k
The Bank lends you 80%, or $240,000 against it.
You pay off the old mortage of 70k*
You now have 170k left in your hand.

* To save you time, and so the new bank gets an exclusive hold over your property the new bank does it for you

The fact that you have already spent part of your money, doesn't mean the bank hasn't lent you the full 80% that they agreed to. It just means... You've spent part of the money they loaned you. Whether that was to pay off an old debt, or to take a round the world trip is not their problem. They have loaned you $240,000, and you chose (wisely) to pay off your old mortgage with it.

 

[newadv]

Yes I agree, the loan amount should have been for $240,000 when I re-financed but it wasn't. It was $170,000 after the $70K original loan was paid out. How do I get a loan now for $240,000???

 

[Springtime]

Yes I agree, the loan amount should have been for $240,000 when I re-financed but it wasn't. It was $170,000 after the $70K original loan was paid out. How do I get a loan now for $240,000???

The loan IS 240K. Then you had to pay back the bank 70K, leaving you 170K in your pocket. You still owe 240K!

 

[newadv]

I have now one loan outstanding for $170,000 on a $300,000 property after I refinanced. So my LVR today is now 56%. I want to get my LVR to 80%. I want to keep the bare minimum equity in the property so I can leverage $240,000 (80% LVR) of the bank's money & only $60,000 of my money as equity tied up in the property instead of now having $130,000 tied up in it. I can only illustrate by stating if I were purchasing this property today, I would only need $60,000 deposit whereas the bank required me to have $130,000 "deposit" in this refinance exercise. I have read all the posts & understand what the bank did but it still leaves me with 44% equity tied up when I wanted only 20%. Is this clearer?

 

[DadOfSam]

Yes I agree, the loan amount should have been for $240,000 when I re-financed but it wasn't. It was $170,000 after the $70K original loan was paid out. How do I get a loan now for $240,000???

You have a loan for $240K. That is what you will be repaying. It is just that you have $70K equity less than you thought because that has gone towards paying off your original loan:

By growing from $100K to $300K you have added $210K in equity, of which $40K is now added to the minimum deposit level to keep the 80% LVR.

$210K - $40K = $170K.

$170K is your available equity to purchase the IP/iPod/Car/other of your choice.

$240K is the loan you are now repaying. Not the available equity.

There is no more available equity at 80% LVR.

PLEASE tell me you understand.

 

[newadv]

Thanks for taking the time to illiustrate. In your image, you show I have $240,000 in loans ($70,000 original plus $170,000 in additional borrowings) but I now only have one loan for $170,000 after refinance. If I were to sell this property tomorrow at $300,000, I would pocket $130,000 as equity so I don't see this as an 80% LVR. I now have $130,000 of equity in this property & $170,000 loan. I'm sorry I don't see how this is NOW 80% LVR

 

[Springtime]

Dude, can you please stop saying you only have a loan for 170K? It's hurting my ears. You have a loan for 240K. Really. The 170K figure is just the additional amount of money you have to spend after refinancing.

 

[newadv]

Springtime, if you want to look at it like that then let me illustrate: original loan $70,000 balance; new loan after refinancing $170,000. The bank gave me an additional $100,000 not $170,000. I still have $130,000 equity in the property. I NOW have ONE loan for $170,000 on a $300,000 property!!!!!

 

[Ajax]

this thread is now getting a bit silly...Somersoft posters are just too polite...newadv is either having a lend of us all or is not the sharpest tool in the tool shed.


Ajax

 

[newadv]

OK, I will go away after this but someone please agree with me that I have 44% equity in this property since it is worth $300,000 & I now have only one loan that I am paying off worth $170,000. This would make my equity stake in this property $130,000. Can someone agree with me on that point at least??!! If, by some small chance, someone can agree, is there any way I can access $70,000 thousand of this equity?!! Thank you every one for your time

 

[Springtime]

Springtime, if you want to look at it like that then let me illustrate: original loan $70,000 balance; new loan after refinancing $170,000. The bank gave me an additional $100,000 not $170,000. I still have $130,000 equity in the property. I NOW have ONE loan for $170,000 on a $300,000 property!!!!!

Well that is confusing then, as it seems you have said two different things. From your original post you say that you had 170K "available of investment" - leading us to believe that the bank had lent you an additional 170K. But now it seems you are saying something different - that the bank has lent you only an additional 100K.

 

[LynnH]

newadv

No - am afraid we can't agree with you on this one. From the information you provided, you have a loan of $240,000. Of this, $70,000 has been used to pay out the old loan and you have $170,000 left. Your equity in the property is $60,000 ($300,000 - 240,000 loan). You cannot get any more loans on this property unless you go above 80% LVR. You will need to provide the bank with more security if you want them to give you another loan.

Cheers
LynnH

 

[Sunder]

I only have $170,000

The bank gave me an additional $100,000 not $170,000

So can you be clear on this? Did the bank give you $100,000 or $170,000?

Investing is a business. Businesses fail because of poor accounting and cash management. If you cannot even decide how much money you have, sell your ip, give up the idea of investing, and just earn 8.5% in a fix term deposit.

Really, I am serious. The number 1 reason any business fails, is because they could not manage their cashflow, and did not have a good idea of what their financial position was. If you can't even figure out how much money you have, what hope is there for you? I know it sounds harsh, but that's the reality of business.

 

[Spectre]

newadv

its just been a jumbled up post. Think I got it... the bank stuffed up and only lent you 170 when it should have been 240

Long and short is all you owe is 170k due to whatever reason. To get the 240 you simply have to do a new application for the 70k.

This can be done possibly by increasing the existing loan if its a variable or a separate loan.

 

[fernfurn]

If he actually wants to buy another property with this new money, wont the value of the new property be taken into account to let him loan more money because at the moment he is trying to get the paper money out with nothing to back it?

 

[Spectre]

celica
If I'm reading you right - I dont think he hasnt found the new property yet. Once its found then theoretically he'd borrow "X" percent against the new property (P2) with the deposit funded from equity in property 1.

 

[fernfurn]

Thinking you made a typo and meant "he hasnt found a property yet" and yes, thats what I meant, once he finds one he can use that as collateral