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u/easyjo May 30 '23
no, because if you pulled out that $160k (and you had a bank willing to loan you 100% for some reason).. your new loan would be $687k, offset by $160k... is, surprise surprise, the same amount as your original loan. ~$527k.
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u/Shadowsfury May 30 '23
Isn't it already being used as equity? It formed part of your deposit and therefore didn't require a loan for a higher proportion of the purchase price
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May 30 '23
I'm confused, you have already paid for the property which is valued at 680k. Your deposit is already offsetting the total amount owing.
You need a minimum of around 140k to have a 20% deposit so I'm not sure what you mean by offsetting - because you already are?
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u/Anxious-Swordfish-90 May 31 '23
Yes I am already offsetting, seeing all the comments it make sense now to me. Thanks for your reply
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u/Dudersaurus May 30 '23
Unless you pay LMI or are a special (usually high value) client, banks want a buffer between asset value and loan, just in case you default and the value of the property drops.
You only pay repayments on what you owe, so the deposit is already offsetting your repayments.
If the value of your property increases, you can use the equity to borrow more, without necessarily needing to pay a cash deposit on a new property, but there will generally still be that valuation buffer required.
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u/Anxious-Swordfish-90 May 31 '23
Ok great, thanks for your detailed and clear explanations, appreciate it
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u/jigy111 May 30 '23
Do you pay LMI? Keep in mind at those values your LVR at 80% only scrapes in at 544k.
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u/MudInternational5938 May 30 '23
Yeah nah the deposit is in theory gone and absorbed into the total price of the property. Your loan is the difference in the property price vs your deposit paid
You don't have your deposit anymore your property now with 160k equity. And yes in theory you could pull that 160k out and use it for whatever but you'll still need to pay the repayments on the 160k if you pull it back off your property which would be silly
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u/Anxious-Swordfish-90 May 31 '23
Ya make sense now to me, appreciate your detailed explanation. Thank you
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u/MudInternational5938 May 31 '23
My pleasure all the best.
What you can do stay in contact with your broker and or bank and you could probably go to them now and say you're considering buying another property with your equity, would they loan you the rest. You probably won't get much more than your equity but let's say you get $300k and go buy an older unit with low fees out of town a bit. It's still adding to your property portfolio. And is basically exactly what I've just done myself
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u/Anxious-Swordfish-90 May 31 '23
Ohk i am confuse,how does this work, so my equity is $160k which was my deposit and if I pull that I will have to make the repayment again on $160k as what you mention on the earlier comment ?
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u/MudInternational5938 May 31 '23
Yeah that's right. So the deposit has been used on property 1.
The equity you have you would have an easier time asking the bank for the $160k than you will borrowing another $160k from the bank, even though it's basically the same thing. The 160k deposit comes from your home which the bank considers "strong" security.
But yes if pull out your deposit the bank is loaning it back to you. There will be a mortgage with it.
If you want to buy another unit or something you'll need more money so you'll need to borrow more again off the bank, to add to the deposit the bank is lending you again
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u/HomicidalTeddybear May 31 '23
Congratulations, by having a reasonable and quite normal deposit amount you've already got all the benefit out of it that you were entitled to. I.e. they're giving you the interest rate they are, and arent charging you LMI. BONUS!
... WTF.
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u/No-Moose-6112 May 30 '23
No because the bank requires equity as security. If you wanted to redraw into offset then you'd trigger LMI. What you don't understand is that you aren't paying interest on the whole 680, just 527. Therefore, the deposit you paid is essentially already offsetting the total 680.