"Separate properties, separate finance?"



From: Paul Hickey

Can anyone answer this question for me about property financing?

I have just had my home revalued and I should have access to redrawn funds of around $54,000 if I redraw up to 90% of my home's value. So I plan to go shopping soon for a two bedroom unit in the eastern suburbs of Sydney for, say, $350k.

My existing lender, a bank, will allow me to borrow 100% of the cost of this unit, plus expenses and possibly even renovation costs, as long as the overall loan is secured by both properties. i.e. the securities of the two properties will be linked.

My understanding from various sources is that it is preferable to redraw a 10% deposit from my home loan and go to another lender for my first investment property. This keeps the properties separate in terms of security.

But if I do that, won't I have to fund a 10% deposit ($35k) plus my purchase costs (say $19k). There goes my $54,000 with no money left over for renovation or loan servicing.

How do I go about getting the second lender to loan me 90% of my COMBINED purchase price, purchasing costs and renovation?

i.e. I want to finance the property like this

Purchase price $350,000
Stamp duty, legals, etc $ 19,000
Rejuvenation $ 20,000

TOTAL COSTS $389,000

I provide 10% deposit $ 38,900 leaving me $15,100 to service loans and act as backstop

They loan balance of $350,100

Would a second lender do this? Under what circumstances? Do I only need to ask? Or will it be based on forecasted value of the investment property after the rejuvenation?

P.S. I'm not worried about the money I redraw from my home loan being seen as non-deductible (if that is the case) as my home will soon be rented out too.


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Reply: 1
From: Rolf Latham

Hi Paul

My usual answer to this one:

Get yourself a good independent mortgage broker.

Note the two prpoerties do NOT have to be with two lenders for separate securities.

Your existing lender will probably only allow the transaction if the overall LVR does not exceed 90 %. This being the case practically any lender will do the second loan depending on serviceability.

You can probably also get a 95 % loan with capitalised mortgage insurance for the IP thereby maybe avoiding Mortgage Insurance premiums on one of the two loans


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