Refinancing-please explain

From: John B

I keep reading about accessing (refinancing)your capital gain. Can someone explain exactly how to do that?

For example if I buy a property for $200,000 (still paying an IO loan) and it is now worth $300,000. How do I refinance to get at the extra $100,000? Does my IO loan change? Bank costs change? What are the tax implications? I understand that there is no CGT as I have not sold it.

Sorry for sounding a bit thick on this issue.

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Reply: 1
From: GoAnna !

Hi John

I am sure that others will come in and explain it better but just so you can sleep tonight here are my thoughts.

Step one; Have your bank revalue your property.

Step two: Calculate equity. If you want to avoid MLI calculate it at 80%

Valuation x 80% - amount owing on loan = amount of equity you can access.

Step three: Set up a new loan (separate from ip loan for tax reasons. This loan might be LOC, fixed or variable. Most would choose LOC due to the flexibility and the fact that you only pay interest on what is owing (interest only)

Step four: Go shopping!

Most investors would be eager to use this money as a deposit for the next ip. Maybe you need it to renovate, build etc. If you are silly you could even spend this money on every day things (doodads!) but most wouldn't advise this as the interest would not then be tax deductible. But perhaps it is part of your strategy.

And yes you are right there is no CGT. You haven't sold. And no income tax as this is not income. It is a loan.

Hope that helped. : )

GoAnna !
(aka Anna before she got real)
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Reply: 2
From: Rolf Latham

Hi John
Go_Anna has it covered, I would add just a few things

1. Sit down with an independent mortgage broker rather than going to your bank first - can save you heaps of timr, money and heartache.

2. You can acces up to 90 % of your equity if you go for a Mortgage insured Loan, but that is opening a whole other kettle of fish.

3. You can then get a 95 % loan for IP if you wanted to. and if your serviceability was enough you cold buy 1 2 or ? properties in the next couple of months.


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Reply: 2.1
From: Liam B

One problem you will face with getting your Bank to re-value the property is that they will not tell you what it is worth. The will only say is the property can be used as security or not. However you can appoint one of their approved valuer's, pay them yourself and they will accept the amount of the valuation.

Rolf is right use a Broker or should I say a GOOD Broker.

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Reply: 2.1.1
From: GoAnna !

My bank always tells me the revaluation amount. Otherwise how would it work? If they tell me how much I can increase my borrowing by I could work it out anyway.

GoAnna !
(aka Anna before she got real)
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Reply: 2.1.2
From: Marina. L

HI there,


How dare they not tell you.

They tried doing this to us when we first started the property game but they did not get away with it.

We thought it was a crazy way of doing business and we told our bank manager exactly what we thought of this silly arrangement.

AS far as we are concerned this is OUR BUSINESS and a very serious business it is.
We are working with 7 digit figures here and we NEED to know the values of our properties.
This is not a game and We have learnt that valuations can make or break you, they can help your wealth creation or they can hinder your wealth creation.

The ball is in our court and the bank manager knows that.

Now we call her on the phone, tell her we want such and such revalued, she jumps, we then call her a couple of days later and we say "how much has it been revalued at",she says $$$$" we say "great, Put the extra equity in our LOC, she says "will Do"

We have her trained very well.

We have learnt that the banks do make it hard on average people, but when you get out of that average mentality You will learn to demand things and never take NO for an answer from the bank.

If we had OBEYED the banks each time we wanted something we would not be where we are today.

This is arial
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From: Liam B

Yep well that's Bank west for you. And on top of that they have recognized our need for a personal banker and this is the crap I had to put up with. I even threatened taking my business elsewhere ( which I am going to do )but that is them all over. They told me once you got over 300,000 in loans they would only let you have 85% LVR even with LMI. Yep so I thought it was a generic thing for banks to not disclose the valuations after the efforts of my Bank.

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