Using equity in my PPOR for deposit on IP

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From: Dan D


I'm about to purchase my first IP.

I am using $25K of the equity in my PPOR to pay for deposit and cost of purchase of IP.

Since from the lender's point of view the $25K is a loan against the equity in my PPOR, the repayment of this loan is put into the total loan for the IP.

A few things I don't fully understand:

Presumably, I have now lost all previous equity in my PPOR since it has been used up for the purchase of IP. Correct?

The price of the IP is $225K. Total loan amount is $238K (to cover purchase costs etc). Do I have any equity in this IP at all?

Dan.
 
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Reply: 1
From: Rolf Latham


Hi Dan

You are looking at using both the PPOR and the IP for the security for the new 238 loan.

This means that any equity is pooled between the two properties, there are no discrete equities.

I would be interested to know what the actual loan vs value numbers are for your home.

There may be another way of doing that which does not tie up both securities on the one loan. There can be tax and flexibility issues if the loan structure is not "ideal".

Ta

Rolf
Rolf
 
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Reply: 1.1
From: Dan D


Rolf,

My PPOR is valued by the bank at $150,000. Amount remaining on loan is $90,000.

Hm. I did say to the lender that I wanted the two as separate loans. Whether this is the case is kind of hard to determine looking at documentation.

Probably a good idea to get in touch with the lender and confirm that these are separate loans. I'm beginning to doubt this now since they were going to lend me much less for a non-Xcollaterised loan, and now that I had to go over that limit in order to ensure that I could by an IP with good capital growth prospects, it looks like they may have joined the two loans. In that case, I don't see any point in using any of my equity.

I am not planning on further IP purchases, but I am keen on seeing equity gain in both of these houses.

Dan.
 
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Reply: 1.1.1
From: Rolf Latham


Hi

Based on those numbers alone you can do the following depending on the lender and serviceability issues of course.

150 val for house means 120 k equity accesible without mortgage insurance.

You owe 90 as PPOR, so that leaves 30 for a deposit and costs.

224 purchase at 5 % deposit = 11 200 + 14 000 costs as per your numbers = 25 200. Plenty without having to xcoll on that basis, BUT only a few lenders will do a 95 % investment loan, and the requirement for the xcoll may be related to other issues. Maybe they are not going to charge you LMI etc.

Please keep us posted on the outcome.

Ta

Rolf
 
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