Is It Time for Me to Release Equity?

kimba88 on 23/06/2015 - 22:28

Hi guys,

I have heard that banks are now getting stricter and not lending as much. I currently have approx 300k loan (Split loan: 280k and 20k) on a house bought for 340k 2yrs ago in Western Sydney. My last valuation was done in October last year and the bank valued it at 400k. Since then, i have seen more astronomical growth in the area and houses are now reaching between 500k-600k (based on realestate.com.au).

I have been in contact with a mortgage broker who recommends i combine my 2 loans (280k and 20k), get a valuation done, and release equity to sit in my offset account (like a line of credit.. i'm not really sure what that means?). When i am ready, i will have another deposit for a property.

I have also been in contact with someone at the bank who also recommends to combine the 2 loans.. but recommends i get a valuation, then pay the 20k loan off, then have the rest sitting in my offset account. This senior personal banker says she would not suggest for me to do line of credit.

I'm confused on their conflicting opinions and what line of credit exactly means. I would love to know what ozbargainers would do (numbers wise). My ultimate goal is to build a property portfolio, but i am very hesitant to in this crazy market (yes, i have and am considering interstate sales too).

Please help :-)

Poll Options

  • 7
    Yes, release equity, combine the loans, have equity sit in offset (line of credit)
  • 0
    Yes, release equity, pay off 20k loan, have equity sit in offset (not line of credit)
  • 2
    No, wait it out. Don't release equity yet.
Financial

Comments

  • johndowy on 23/06/2015 - 23:02
    -2

    I am surprised you have loan and not know what they are talking about.

  • jason101 on 23/06/2015 - 23:33

    I think you need to phone a friend or trusted relative. If your goal is to buy another property, releasing equity now will do nothing other than temp you to take that trip to Europe or buy a new Bmw. A cash deposit isn't required if you finance the 2nd home through the same financier. They will Happily use the accrued equity in property #1 as collateral for property #2. Although if you are trying to avoid cross collateralisation ie you want to use different financier for property #2 or you fear a mortgagee in possession issue on both properties if you default on either- perhaps you should release the equity as cash. Sorry I just realized I have offered no solution, other than to perhaps highlight the right answer is the one you choose based on your own circumstances. Self education might be the answer here.

    • kimba88 on 24/06/2015 - 07:03
      -2

      I won't be tempted to use the money for anything else. I'm quite good at being tight. I've already booked my Europe trip and paid for it, so there's no issue there. I won't want to cross collateralize.. I know that much.

      • kimba88 on 25/06/2015 - 10:57

        Why have I been negative voted.. I'm not sure what I said wrong? Am I not understanding something properly in regards to loans? I know I've got a lot to learn, but that's why I'm asking you guys. Sometimes you wonder where the intentions are of a broker or banker, so I'm unsure what advice to go with.

  • Mamaof3 on 25/06/2015 - 21:43

    Being someone who has businesses in both fields I would definitely release as much equity as possible and sit it in an offset account ready to be used as the need arises. Obviously you'd have to be someone with the right mindset and self restraint to not freely use that money for anything else other than to further invest. APRA have definitely tightened the lending but this mainly applies to the majors…there are still lenders out there that can offer up to 95%LVR + cap. LMI (up to 97%) for owner occupier AND investment loans. Its the Investment Loans that has been hit the hardest as a result of the APRA ruling. Lots of options out there but main thing is not whether you have the equity but also whether you can service the debt. If you want i'm happy to run some numbers through my system to see if servicing is an issue. I have access to RP Data as well so if you need me to order a property profile report which will give you an indicative valuation on your property feel free to shoot me a PM and i'll order it for you (doesn't cost anything).

    The main point of difference between a Line of Credit and an Offset is generally Banks charge a slight premium to have a Line of Credit facility on your loan (loan account and line of credit is all encompassed under the 1 account) whereas with an offset you'll have a separate account for the home loan and a separate account for your offset. Works the same way, whatever sits in your offset account offsets the interset payable on the loan. Normally with a Line of Credit facility you'd be paying approx. 0.2% more.

    • kimba88 on 25/06/2015 - 22:10

      Thanks so much for your reply Mamaof3! I have sent you a PM with a few more questions :-)

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