The state of the finances
OK, in a nutshell:
1) There are some limits which come into play when we try and access our house equity via a line of credit.
2) These limits are twofold. Firstly, there is an 80% LVR limit which seems to be either government- or industry-mandated, and which means that we can't borrow more than 80% of the value of our house including both the mortgage and any equity loan without needing mortgage insurance. Basically: Below 80% is A-OK, above 80% has to be referred to the mortgate insurange people.
3) The mortgage insurance industry in Australia is effectively a duopoly, with both companies having near-identical policies. One of these is a hard numerical limit on the total loan amount they will OK for a property. As it turns out, that's exactly the amount we owe on the mortgage already. (This is a side-effect of spending 20% more on the house than we were planning to.)
So. As we currently owe around 83% of the value of the property, and are up against the hard limit as well, we cannot access any of the equity in the property at the moment.
Now, the good part is that (a) these numbers are likely to change in our favour soon, and (b) that we can borrow enough off my folks to tide us over from now until then.
Here's the breakdown.
The hard limit has been growing by leaps and bounds recently, and because it's different for each area and Perth has just undergone a mining-related boom with corresponding increases in property prices, it is very likely to jump yet again within six months. Because we're sitting bang on the old limit, any increase at all will allow the mortgage insurers to OK our line of credit.
The percentage limit won't change, but because we're in an area where the average property value increases as an almost dead-straight line on a logarithmic graph (one reason why I chose that area to invest in), it's extremely likely that our 83% will drop to below 80% in around four months, even though we're only paying interest on our loan. Once it gets under 80%, the banks can OK our line of credit themselves without even having to refer it to the mortgage insurers.
Summary: We are a hairsbreadth outside the playing field boundary line for sustainability (we stepped over the limit when we paid more than our initial budget for the house), but the size of the field is continually expanding and the goalposts are about to be pushed way, way back. As soon as either the field boundary or the goalposts pass us, we're golden. This will take about four to six months. And in the meantime, we can borrow enough to keep us afloat. So we're good.
Post-summary: This is actually good in the long run. I've always set up this investment so that we would get long-term gains while being kinda under the hammer in the early days, rather than the reverse. Because we paid more for the place than we planned, this tips the balance a little more towards long-term gains, but it does mean we cop it a little harder in the first six months. It's not impossible to balance by any means, but it does mean that getting jobs in Perth has moved up the priority list.
1) There are some limits which come into play when we try and access our house equity via a line of credit.
2) These limits are twofold. Firstly, there is an 80% LVR limit which seems to be either government- or industry-mandated, and which means that we can't borrow more than 80% of the value of our house including both the mortgage and any equity loan without needing mortgage insurance. Basically: Below 80% is A-OK, above 80% has to be referred to the mortgate insurange people.
3) The mortgage insurance industry in Australia is effectively a duopoly, with both companies having near-identical policies. One of these is a hard numerical limit on the total loan amount they will OK for a property. As it turns out, that's exactly the amount we owe on the mortgage already. (This is a side-effect of spending 20% more on the house than we were planning to.)
So. As we currently owe around 83% of the value of the property, and are up against the hard limit as well, we cannot access any of the equity in the property at the moment.
Now, the good part is that (a) these numbers are likely to change in our favour soon, and (b) that we can borrow enough off my folks to tide us over from now until then.
Here's the breakdown.
The hard limit has been growing by leaps and bounds recently, and because it's different for each area and Perth has just undergone a mining-related boom with corresponding increases in property prices, it is very likely to jump yet again within six months. Because we're sitting bang on the old limit, any increase at all will allow the mortgage insurers to OK our line of credit.
The percentage limit won't change, but because we're in an area where the average property value increases as an almost dead-straight line on a logarithmic graph (one reason why I chose that area to invest in), it's extremely likely that our 83% will drop to below 80% in around four months, even though we're only paying interest on our loan. Once it gets under 80%, the banks can OK our line of credit themselves without even having to refer it to the mortgage insurers.
Summary: We are a hairsbreadth outside the playing field boundary line for sustainability (we stepped over the limit when we paid more than our initial budget for the house), but the size of the field is continually expanding and the goalposts are about to be pushed way, way back. As soon as either the field boundary or the goalposts pass us, we're golden. This will take about four to six months. And in the meantime, we can borrow enough to keep us afloat. So we're good.
Post-summary: This is actually good in the long run. I've always set up this investment so that we would get long-term gains while being kinda under the hammer in the early days, rather than the reverse. Because we paid more for the place than we planned, this tips the balance a little more towards long-term gains, but it does mean we cop it a little harder in the first six months. It's not impossible to balance by any means, but it does mean that getting jobs in Perth has moved up the priority list.