Question about total mortgage after using equity for additional property

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ChrissyH
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Joined: Thu Jan 16, 2020 8:10 am

Question about total mortgage after using equity for additional property

Postby ChrissyH » Thu Jan 16, 2020 10:44 am

I am trying to make sure I understand how equity works in terms of the final mortgage/loan repayments.

Here's what I understand:
My townhouse is currently valued at $590K. My outstanding loan is $348K, meaning I have $242K equity.
80% of my property's value is .8*590 = $472K, less the outstanding debt of $348K = $124K usable equity.

Here's where I need clarification:
  • Is it correct to say that in order to avoid LMI, I can get a new loan up to $620K (with $124K being 20% of 620)? 
  • Is it also correct to say that if I do this, my outstanding mortgages are (1) $348K on the original loan and (2) $620K-$124K = $496K. Therefore a total outstanding mortgage of $844K?
One last thing:
My husband and my finances are rather separate, and we want to keep it that way.
I have a tenant in my townhouse, that the mortgage on that is current 'taken care of'. (Note that the mortgage/townhouse is in my name only)
My idea is that I buy this new property (using the aforementioned equity) to live in, so that we stop renting. I buy it in my name only - the mortgage repayments be in my name only - but my husband contribute what essentially would be a 50% 'rent' payment to me.

Do you see any pros/cons in doing that?

Thanks so much!

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Otto Dargan
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Re: Question about total mortgage after using equity for additional property

Postby Otto Dargan » Thu Jan 16, 2020 11:29 pm

Hi ChrissyH,
Here's where I need clarification:
  • Is it correct to say that in order to avoid LMI, I can get a new loan up to $620K (with $124K being 20% of 620)? - Yes, please also factor in property purchasing costs such as stamp duty, legal fees, loan fees etc.
  • Is it also correct to say that if I do this, my outstanding mortgages are (1) $348K on the original loan and (2) $620K-$124K = $496K. Therefore a total outstanding mortgage of $844K? - Yes.
One last thing:
My husband and my finances are rather separate, and we want to keep it that way.
I have a tenant in my townhouse, that the mortgage on that is current 'taken care of'. (Note that the mortgage/townhouse is in my name only)
My idea is that I buy this new property (using the aforementioned equity) to live in, so that we stop renting. I buy it in my name only - the mortgage repayments be in my name only - but my husband contribute what essentially would be a 50% 'rent' payment to me.

Do you see any pros/cons in doing that?
You could do that provided your income is sufficient to service the total loan amount. Please seek legal advice on how to best structure the loan and the property. If the loan doesnt service on your income alone, there are other options such as having two borrowers, one owner.
Thanks so much!
To speak with one of our award-winning specialist mortgage brokers, please give us a call on 1300 889 743 or fill in our short online assessment form.
Otto Dargan
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ChrissyH
Posts: 2
Joined: Thu Jan 16, 2020 8:10 am

Re: Question about total mortgage after using equity for additional property

Postby ChrissyH » Fri Jan 17, 2020 7:38 am

Thank you so much! I understand what you've said and this is great information.


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