Using exquity to buy property

Using equity to buy property

Hello

I am just after some advice regarding our situation. I am very new at this and am not sure how it all works. We purchased our first property off the plan as first home buyers which settled August 2009. We have set the loan up as interest only from the start and always had in mind that we would only live in the property temporarily and then convert it to an investment property once we leave Darwin. We have already got about $90,000 equity in the property and are now considering purchasing another property in Darwin before we eventually move interstate. The plan is to move in and do a reno, then move out and rent it out.

Can we use the equity in our property to purchase another property which we will live in temporarily without having to pay capital gains tax on it?

I really haven’t got my head around this at all.

Any advice would be greatly appreciated.

Cheers

Darwinite.
 
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You don't pay CGT unless you SELL. If you are just refinancing and turning some equity into cash then no CGT applies.

Subject to the lender and their policies, including your serviceability, then you should have no problems converting some of that equity into cash and using it as a deposit on your next purchase.
 
Great thanks for your help!

Just one more questions, when we purchased our current property we used lenders mortage insurance with a lvr of 95%, we are now sitting around 80%. So when we refinance and bring the lvr back up to 95-97% do we have to pay LMI again?

Cheers
 
Great thanks for your help!

Just one more questions, when we purchased our current property we used lenders mortage insurance with a lvr of 95%, we are now sitting around 80%. So when we refinance and bring the lvr back up to 95-97% do we have to pay LMI again?

Cheers

Yep, once you go over 80% the LMI kicks in - there is no, as they say, free lunch :)
 
Great thanks for your help!

Just one more questions, when we purchased our current property we used lenders mortage insurance with a lvr of 95%, we are now sitting around 80%. So when we refinance and bring the lvr back up to 95-97% do we have to pay LMI again?

Cheers

Assuming you have been putting in extra repayments, does your loan have a redraw facility?

Or does it have an offset account?

Or is the extra "equity" just from an increase in the value of the property?

Regards,

Jason
 
Thanks for your reply Propertunity.

Yeah equity is just from the increase of value, we have off-set account but not alot in there at the moment.
 
Hey Darwinite

depending on the lender, and the structure used, the OLD lmi may still be useable such that you only need to pay the premium that applies to the new money, potentially saving u thousands

ta
rolf
 
Yeah I am hoping that is the case seeing as the LMI was over $7000. With car insurance or contents if you no longer require it they will refund on a pro rata of what is remaining. It would seem crazy that we purchase lmi for the life of the loan (30 years) only to refinance after one year and loose the LMI.
Anyway i will ask CBA about that one.

Thanks for your help.
 
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I could be reading this wrong but I understood that the banks would generally lend - for investment, on your ppor up to about 80% ( Incl your current debt on that property)- are you saying that you already have 80% LVR on your current property?

As it was pointed out you only pay cgt when you sell a property - But living in a property for a short period of time and then renting it out wont make it cgt exempt - you will however get 50% on that cgt payable - if you hold it as an IP and sell it after owing it after 1 year.
 
When we purchased the property we were at 95% lvr. With the increase in value we are now sitting at 80% lvr. So you don't think the banks would allow us to withdraw the equity to purchase another property to take it back up to 95%? Is that what you mean?

Just thought i would mention, we have no plans to sell. Our strategy is to buy and hold.
 
Yeah I am hoping that is the case seeing as the LMI was over $7000. With car insurance or contents if you no longer require it they will refund on a pro rata of what is remaining. It would seem crazy that we purchase lmi for the life of the loan (30 years) only to refinance after one year and loose the LMI.
LMI is used up exponentially, though, unfortunately, not in a straight line. About 50% or more of the risk is in the first year, so don't expect to get a *lot* of credit, but hopefully you will get some. :)
 
On a refinance/top-up or equity draw, lenders aren't going to 95% anymore, it's likely the maximum you'd be able to get is 90% of the current property value. Outside of this detail, your understanding appears to be correct.

It does need to be done with care, as shifting to another lender or an incorrect structure may mean you pay LMI on the entire loan as opposed to only paying LMI on the increase (as Rolf has indicated).
 
Cheers for that.

How easy is it to have a broker work for you from interstate? I have heard some horror stories about some brokers in Darwin.
 
It's easy, if you have access to fax, scanner (to email docs) or postal services! :p

Our MB is on Gold Coast and we live in Geelong. Bought mid-last year and did it all remotely.
 
Hi Darwinite

I can vouch that there are some gr8 brokers in darwin, as I kno its not hard to work with an interstate broker.

Many an experienced broker has clients from most of the continents, so Aussie states usually dont present a problem to the broker.

ta
rolf
 
Although the value might have gone up as you say the bank valuation may not reflect the same and your LVR may still require MI. Some of the valuers in Darwin like to undervalue consistently by around 20% for the banks when it is refinancing or using equity as security to purchase a second property.

Are you dealing with CBA Darwin or Cas?
 
Hiya Y33

A consistent 20 % would be malpractice ?

I agree there is a resistance to valuers meeting the market because for so many years it has just been on the Up, and therefore there is a perceived propensity for it to at some time come Down.

We see 5 % as not unusual, 10% on occasion, but rarely 20 %, unless the borrower expectation is unrealistic in the first place.

ta
rolf
 
Rolf, Agree with your thinking on how it should be but reality has shown otherwise on more than a few occasions.
 
Y33 - We deal with CBA Darwin. If they were to under value by 20% we certainly wouldn't accept this without a fight.

Rolf - Can you send me a Darwin broker referral?

Cheers
 
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