Borrowing against Equity for additional Reno

[loogmord]

First timers question...I've just completed some renovations on my house which I bought about a year ago for $250k. I'm planning on getting an RV and bringining it to the bank so I can borrow against my mortgage. I believe the RV should be about $300k. I want to borrow against the equity to convert my garage to a self contained flat to make the property cash flow positive. My question is how much will the bank usually let someone borrow - is up to 90%, 100%, etc of RV? Any insight will be helpful.

[Dean@Massiveaction]

80% normally. However with good credit and if you comply income wise etc. it is possible to get up to 100%

[Seaside]

I went to see my bank manager yesterday... we're on the move! He said that we *could* borrow more than 80% of the value, but we'd have to have insurance to cover the lifetime of the loan. And it's expensive.

[xris]

I went to see my bank manager yesterday... we're on the move! He said that we *could* borrow more than 80% of the value, but we'd have to have insurance to cover the lifetime of the loan. And it's expensive.

In my opinion, your bank manager is trying it on. Stand your ground!

xris

[revdev]

Hi Loogmord,

Given where we are in the property cycle, maintaining your LVR to a MAXIMUM of 80% may be prudent anyway.
Some would argue (me included) that this still leaves little room for any eventualities.

All the best
G

[Seaside]

Hi Xris

We're getting a valuation done today on our existing property (because we're borrowing on the strength of our equity in it) and hopefully that should bring our borrowing to below 80% (the GV doesn't). I've already been given an estimation of market value by a real estate agent who I know from past experience to be relatively spot on with prices.

If the valuation is below what we're hoping for, then I'll try pistols at dawn with the bank manager (or at least look at our options with other lenders). Because of the level of our borrowing (albeit short-term until we sell our current property, after which we'll be a smidgeon over 71%, based on a conservative estimate), the insurance would be $6,500 even if we're just a fraction over 80%.

[JohnL]

Its standard practice for most banks to insure the portion of the loan over 80%, but thats a one off fee added onto the loan. Its not that expensive and just a cost of borrowing.

I assume your bank manager is asking you to take some sort of life insurance to cover the loan (at that price)???

John

[Seaside]

Hi John, it's good to know that they add it to the loan, rather than us having to cough up $6500 right now. Having said that, over 20 years, $6500 probably turns into an amount that I don't want to think about.

We already have life insurance and we're in the process of increasing that, plus getting income protection, so we feel relatively well covered.

I don't know whether the insurance is only on the +80% of the loan. We are asking to borrow $720,000 on two properties and without RVs (these are being done), the combined GV of one plus the market value of the other (buying through an agent) is $800,000.

[Ivanhoe]

One thing typically suggested by mortgage brokers/finance advisers would be: increase the borrowing on the current property to 80% of Registered Valuation in a form of revolving credit; borrow 80% of the purchase price of newly purchased property; use money from revolving credit as a deposit (hopefuly remaining 20%). Or try to talk about bridging finance if you are buying/selling. Or see if you can use equity in rentals in the same way. Also helps getting pre-approval from another bank.
If you take out fixed rate loan, bank sometimes will pay LMI for you (One bank did this for me, another promised too) or capitalise it (add to the loan). Third bank neither capitalised nor reduced LMI in another case.

[Seaside]

Great advice there Ivanhoe, thanks! We're waiting (on tenderhooks) for the RV and if it takes us over 80% your suggestions will help us come up with a plan of action that avoids the LMI. I do have a lot of respect for our bank manager - he's the only reason that I've continued with that bank and that branch over 5 years and 3 properties. However, he is bound by their policies, I guess.

I've been on revolving credit before - it's certainly a good short-term option, didn't think of that! The bank manager has suggested that we come up with the difference (to take us to below 80%) which we should be able to do without selling the children... tempting though that might be.....

Thanks again, you've given me some ideas to avoid forking out for something that's only necessary for a temporary period.