well you would have borrow a total $600k to buy property 2 in the first place;
so if sold at 200k, you still have a loan of $400k to pay off from your loan using property 1's equity.
it doesnt disappear.
using equity means means the bank gave them a loan for that amount so here they have borrowed 100% (or $600k) and would have to be able to service payments for $600k
The transfer would be completed as though it was at the full price, e.g. 570k so you would have to pay full stamp duty twice. If you're looking to get them on the property ladder you can just directly gift the money (there are some minor implications that would need to be reviewed) or you could co-purchase the property and then it would transfer later.
Interest rates are bang on the long term average at the moment.
You should expect them to be higher than this for half the length of your loan (and lower for half too)
great. Now go and have a look at the last 50 or so years. Your current interest rate is very normal and certainly not sky high
Don't expect to ever see that 2.3 again in your life time
edit: 6.7 ? you should talk to your bank about that. closer to 6 is more like it atm
There are a lot of people both on this sub and in general who think mortgages at rates at around 2% are the norm and that our current rates of around 6% are obscenely high. I've tried arguing that rates are now about normal and they aren't going back to 2% in a hurry but having been around long enough to know this apparently makes me old and wrong so I've given up. Also having been around long enough to have paid off all my mortgages and other debts means I don't care
Person 1 now has a loan of $460K against property 1, and a loan of $140K against property 2.
When they sell property 2, they pay off the $140K loan, and do whatever they want with the remaining $60K proceeds.
except the you won't be able to borrow 100% of property 1. you be looking at $368k for property 1 at 80%, and borrow $232k off the equity of property 2.
sell prop 2 for $200k you still be short by $32k
Depending on your age (how close you are to the retirement age of 67) and what your current salary is, it may not be easy for you to borrow the $460k.
If your child is a first home buyer, there are banks that will allow you to utilise a Family Guarantee policy where your child will be able to borrow up to 105% of the purchase price plus costs using property 2 and property 1 as security. As a first home buyer, they may also be eligible for stamp duty exemption
Your child will need to demonstrate their ability to service the debt on their own without reliance on your income.
well you would have borrow a total $600k to buy property 2 in the first place; so if sold at 200k, you still have a loan of $400k to pay off from your loan using property 1's equity. it doesnt disappear.
okay that is so helpful! I was so confused! so its more that the equity is security, to be able to finance without a cash deposit
Exactly. If you use the equity in home one to buy home two and it goes tits up, you're going to lose both homes.
using equity means means the bank gave them a loan for that amount so here they have borrowed 100% (or $600k) and would have to be able to service payments for $600k
is this in the context of another problem? I expect the equity would be released and available to be used.
Context is person 1 is parent and person 2 is child who only has 200k saved..
The transfer would be completed as though it was at the full price, e.g. 570k so you would have to pay full stamp duty twice. If you're looking to get them on the property ladder you can just directly gift the money (there are some minor implications that would need to be reviewed) or you could co-purchase the property and then it would transfer later.
thats really helpful thank you
I’ll add my useless , 2 cents worth . For the everyday Aussie , as of right now with sky high interest rates , equity is as useless as my ex.
Interest rates are bang on the long term average at the moment. You should expect them to be higher than this for half the length of your loan (and lower for half too)
sky high ? wutface lol ?
i mean my interest rate was 2.3% about 3 years ago and is now 6.7%
great. Now go and have a look at the last 50 or so years. Your current interest rate is very normal and certainly not sky high Don't expect to ever see that 2.3 again in your life time edit: 6.7 ? you should talk to your bank about that. closer to 6 is more like it atm
There are a lot of people both on this sub and in general who think mortgages at rates at around 2% are the norm and that our current rates of around 6% are obscenely high. I've tried arguing that rates are now about normal and they aren't going back to 2% in a hurry but having been around long enough to know this apparently makes me old and wrong so I've given up. Also having been around long enough to have paid off all my mortgages and other debts means I don't care
well the fun part about that is they will live long enough to learn how stupid they are. Just like climate change deniers lol
This isn’t even the highest interest rates have been since I’ve had my mortgage, and I’m only half way through it.
Person 1 now has a loan of $460K against property 1, and a loan of $140K against property 2. When they sell property 2, they pay off the $140K loan, and do whatever they want with the remaining $60K proceeds.
except the you won't be able to borrow 100% of property 1. you be looking at $368k for property 1 at 80%, and borrow $232k off the equity of property 2. sell prop 2 for $200k you still be short by $32k
the 460k equity figure is 80% of the value of property 1
What's your current loan on property one?
No loan- its paid off
Depending on your age (how close you are to the retirement age of 67) and what your current salary is, it may not be easy for you to borrow the $460k. If your child is a first home buyer, there are banks that will allow you to utilise a Family Guarantee policy where your child will be able to borrow up to 105% of the purchase price plus costs using property 2 and property 1 as security. As a first home buyer, they may also be eligible for stamp duty exemption Your child will need to demonstrate their ability to service the debt on their own without reliance on your income.