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Speaker 3: Hello and welcome to She's on the Money, where we
Speaker 3: unpack money stuff so you don't have to pretend to
Speaker 3: already get it. Have you ever heard the phrase you
Speaker 3: could use your equity said like it's some kind of
Speaker 3: magical wealth building strategy, and wondered whether it's actually smart
Speaker 3: or just sounds impressive Because that sentence seems to get
Speaker 3: thrown around a lot, and today we are unpacking what
Speaker 3: it really means before anyone does anything too expensive. I'm
Speaker 3: Victoria Devine and not only was i a financial advisor,
Speaker 3: I actually currently own a mortgage an asset finance broken
Speaker 3: company and with me is one of the best brokers
Speaker 3: in my business. Ms. Jacqueline Walsh. I mean, you're all good,
Speaker 3: but like, how else do you explain that?
Speaker 2: Thank you, welcome back.
Speaker 3: To the show we've had you on before. Are you
Speaker 3: excited to dive in and talk about equity always? I
Speaker 3: feel like everyone throws it around, but not many people
Speaker 3: actually know what it is. So if you're listening to
Speaker 3: this and you're like, yeah, of course, I do for
Speaker 3: every person who says, yeah, of course, I do this
Speaker 3: like ten little like what equity? So we had you
Speaker 3: in for an episode at the start of the year
Speaker 3: to fill us in on all of the things that
Speaker 3: changed when it comes to mortgages over the last year,
Speaker 3: and I asked the community for their questions too, and
Speaker 3: one thing that just kept coming up, and we promised
Speaker 3: a whole episode on was equity. And what really stood
Speaker 3: out was how many people thought that they had equity,
Speaker 3: but had no idea what to do with it, how
Speaker 3: to access it, whether they should So I knew that
Speaker 3: we had to probably do a bit of a deeper
Speaker 3: dive on a specific topic, not just a broker Q
Speaker 3: and A. So now that we've discovered in our last
Speaker 3: episode together that, in very simple terms, equity is the
Speaker 3: difference between what your property is worth today and what
Speaker 3: you still owe the bank, yep, I think it is
Speaker 3: time to dive a little bit deeper. So Jacqueline first,
Speaker 3: cab off the rank. We're not doing any fluffy stuff here.
Speaker 3: I just want to do equity content. Okay, say I
Speaker 3: have a property it's worth nine hundred thousand dollars. Yes,
Speaker 3: I've got eight hundred thousand dollars left on the table
Speaker 3: to pay off on this loan. Can I go to
Speaker 3: the bank and say, can I have one hundred grand
Speaker 3: for whatever I want to do?
Speaker 1: No?
Speaker 3: Ah, So it's not just free money? No, okay, what
Speaker 3: is it?
Speaker 2: So you're right in saying that the way that you
Speaker 2: look at equity is what your property value is worth
Speaker 2: today less what your current loan is. So if you
Speaker 2: said that your property value was nine hundred thousand and
Speaker 2: your loan is five hundred thousand. People might look at
Speaker 2: it and say, well, that's four hundred thousand inequity that
Speaker 2: I've got that.
Speaker 3: Well, it is true, like because if you sold your property.
Speaker 2: Correct, But doesn't mean that you can access four hundred
Speaker 2: thousand dollars.
Speaker 3: Without selling your property. Correct? Okay, what could I access?
Speaker 2: In most cases, you can access up to eighty percent. Yeah,
Speaker 2: some other cases you can go over that, but there
Speaker 2: would be potential alumi, so let us more insurance charged
Speaker 2: to that. But let's just say you were to access
Speaker 2: up to eighty percent, you're looking at around taking out
Speaker 2: an additional two hundred and twenty thousand dollars in equity
Speaker 2: once you've got your five hundred thousand dollars loan plus
Speaker 2: the two hundred and twenty thousand dollars equity release. Cool.
Speaker 3: So what are the most common things that you see
Speaker 3: people wanting to use their equity for? Because you can
Speaker 3: basically pull it out for whatever.
Speaker 2: True, Yeah and false at the same correct. Some banks
Speaker 2: are going to really care about what it is that
Speaker 2: you say that you're using the equity for. So in
Speaker 2: some cases you can't use it for business purposes. Other
Speaker 2: cases where you might say that you're doing a renovation,
Speaker 2: but you're trying to take out, say four hundred thousand dollars,
Speaker 2: that's probably not going to be a cosmetic renovation, more
Speaker 2: of a structural. They'll allow you to take it out,
Speaker 2: but they're going to want to see you structure it differently,
Speaker 2: so it could be a building loan rather than just
Speaker 2: eight cash outs now.
Speaker 3: Yeah, Yeah, and that's just their managing their risk and
Speaker 3: making sure that everything is hunky doory. Not necessarily, you know,
Speaker 3: because you can't do that thing. They're just like, that's
Speaker 3: a lot of risk for us to take on.
Speaker 2: Yeah, So if you're going to take out four hundred
Speaker 2: thousand dollars for a renovation, they want to see that. Obviously,
Speaker 2: the changes that you're saying are going to be made
Speaker 2: to the property are getting made because they're opening themselves
Speaker 2: up for more risk. So they're going to want to,
Speaker 2: like you said, manage those funds to the builder. Yeah.
Speaker 3: And I would say the most common equity cash out
Speaker 3: that we do as a business is people taking their
Speaker 3: equity out to buy another house. Yes, would you agree
Speaker 3: with that? So you're using that equity as the deposit
Speaker 3: on the next property, so you don't actually have to
Speaker 3: save up again. Anything else. Any other reasons why you
Speaker 3: might get equity out.
Speaker 2: Yeah, purchasing a new car, purchasing a boat, investment, things
Speaker 2: like that.
Speaker 3: So if I go to my bank, can say can
Speaker 3: I use my equity to buy a boat? Are they
Speaker 3: just going to say yes?
Speaker 2: If your ALVIR loan to value ratio allows it, you
Speaker 2: can service that debt, then yes.
Speaker 3: I could have a boat.
Speaker 2: You can have a boat.
Speaker 3: I love the idea. I don't know how to drive
Speaker 3: a boat. As someone who deals with mortgages every day,
Speaker 3: I mean both of us. But you specifically, what are
Speaker 3: your personal feelings about people using their equity if.
Speaker 2: It's for the right reasons. And I say that if
Speaker 2: you're looking to, say, leverage off equity to purchase a
Speaker 2: new property and another investment property and build your portfolio,
Speaker 2: that to me is for the right reasons. Obviously you
Speaker 2: need to speak to the bank or a broker and
Speaker 2: make sure that what you're doing and trying to achieve
Speaker 2: is right for you and it's going to be beneficial. YEA.
Speaker 2: But yes, if you're asking me, I think that I'm
Speaker 2: well for it.
Speaker 3: Yeah, some am, I just not for the wrong things,
Speaker 3: Like I wouldn't. I'm very apprehensive when people say they
Speaker 3: want to take out their equity for a holiday. I'm like, oh,
Speaker 3: you're not going to have anything to show at the
Speaker 3: end of that. Like, you could technically take out equity
Speaker 3: for a holiday, but from my perspective, I think we
Speaker 3: should only be using it to build wealth. So whether
Speaker 3: that is purchasing assets that increase in value, or you're
Speaker 3: using your equity to invest in shares, or you're using
Speaker 3: your equity to get into another investment property. That's probably
Speaker 3: where my personal values lie, and I think yours are
Speaker 3: kind of similar.
Speaker 2: Yeah, there's definitely been times where I've told people that
Speaker 2: I don't think that they should be Yeah, not decline them,
Speaker 2: but just sort of But.
Speaker 3: As a good broker, you kind of are that sound
Speaker 3: board of like, hey, that sounds really great in theory. Personally,
Speaker 3: I don't know if this is the best idea given
Speaker 3: I've looked at your holistic financial situation. But like, that's
Speaker 3: just putting the client first, and then if they decide
Speaker 3: to go through with it, great, I can probably get
Speaker 3: you in the best deal, but we're just flagging that
Speaker 3: this might not be the best financial decision. But it's
Speaker 3: also yours to make.
Speaker 2: Yeah, you've got to weigh it all up. You're going
Speaker 2: to weigh up rate LVR. Is there any lender's Morgan
Speaker 2: insurance getting added? Is your rate increasing because of this?
Speaker 2: It really needs to be beneficial to you at the
Speaker 2: end of the day to follow through with it.
Speaker 3: Yeah. And in your experience, what do you think is
Speaker 3: the number one thing that people misunderstand about equity?
Speaker 2: I would just say how much they haven't And I
Speaker 2: guess the misconception is that you know you might have
Speaker 2: four hundred thousand dollars in equity and therefore access Ye.
Speaker 2: I can access it. Yes, and no, you can access
Speaker 2: it if you were to sell your property. That's going
Speaker 2: to be cold, hard cash. Yes, Because now.
Speaker 3: You've got a nine hundred thousand dollar property and you
Speaker 3: think you have four hundred thousand dollars equity, and you
Speaker 3: sell it for nine hundred thousand, you're gonna have four
Speaker 3: hundred grand in your hand less the agent fees. Yes,
Speaker 3: but like being really clean about it, But that's not
Speaker 3: how it works when you're asking the bank to have
Speaker 3: that money back, because they still require security over your
Speaker 3: property and security that you're going to pay back the loan,
Speaker 3: so they need the deposits still kind of hiding in there.
Speaker 2: Yeah. So people would assume that if I've got it there,
Speaker 2: I can use it. But there's sort of two I
Speaker 2: guess areas that need to be ticked off, which is
Speaker 2: A do we have the equity there? Yes? And B
Speaker 2: can we service what we're trying to take out. If
Speaker 2: you can't service that loan for the additional equity amount
Speaker 2: that you're trying to release, you can't. You can't access it.
Speaker 3: Yeah. Yeah, And so there's a lot of things or
Speaker 3: hoops that you need to jump through that are not
Speaker 3: really hoops. It's like, technically you're borrowing the money, you
Speaker 3: need to be able to pay for it.
Speaker 2: Surely you actually need to make the repayments back on that.
Speaker 3: Damn it. I thought it was free money. So when
Speaker 3: you're looking up properties values on like domain or real
Speaker 3: estate dot com, dot au, you get a low, mid
Speaker 3: and a high value range, and some times I feel
Speaker 3: like that varies a lot, Like I've been looking in
Speaker 3: our area a lot recently and it's like low nine hundred,
Speaker 3: mid one point three, high six billion dollars and you're like, wait,
Speaker 3: what what's going on? How can someone get a rough
Speaker 3: sense or a rough idea of whether they may or
Speaker 3: may not have equity before talking to a broker, because
Speaker 3: like I could google my address and then it says low, medium, high,
Speaker 3: yeah the range no, especially if you haven't bought the
Speaker 3: property recently.
Speaker 2: Yeah. I mean, if you speak to a bank or broker,
Speaker 2: they do have the tools. I guess to there's tools
Speaker 2: that we can jump online and have a better indication,
Speaker 2: like more of a you know, within a one hundred
Speaker 2: thousand dollars range, I guess, or we can actually do
Speaker 2: a valuation, which is either an online valuation depending on
Speaker 2: how much data we have to say that there's been
Speaker 2: recent sales in the area, or if we need to
Speaker 2: get someone out there and actually value the property in
Speaker 2: person because there's been works completed recently, we need a
Speaker 2: true and correct value, then we can do that too.
Speaker 3: That's what we did, so we knew that we didn't
Speaker 3: want It's called it desktop evaluation. And when I was
Speaker 3: going back and refinancing our mortgages and thinking about, Okay,
Speaker 3: what do we want to do in the future. I
Speaker 3: want to know my house value. I specifically requested an
Speaker 3: in person valuation because if you google the house that
Speaker 3: we had, so everybody knows we've just sold it or
Speaker 3: sold it last year. I knew that the information online
Speaker 3: was not reflective of the property that we'd created. So
Speaker 3: I was like, we've done this really cool renovation, Like
Speaker 3: we've actually tipped a couple of hundred grand into this,
Speaker 3: and like, I think it looks slick. I need someone
Speaker 3: to come and look at all of this so that
Speaker 3: we can get an accurate reflection. Yeah, and in some
Speaker 3: cases it might cost you money, but in most cases,
Speaker 3: if you're thinking about going through that process of getting equity, yes, Jack,
Speaker 3: if you order that, that's free, correct, So like through
Speaker 3: the you're broker, they can organize it most of the
Speaker 3: time free. It will depend on your circumstances and like
Speaker 3: sometimes location and whatnot. But I'd say ninety nine percent
Speaker 3: of our clients get that valuation done for free. Yes,
Speaker 3: What things actually we influence a lender valuation? So obviously,
Speaker 3: like if you've renovated your house significantly like I did,
Speaker 3: and by the way, we got a better valuation that
Speaker 3: I was stoked.
Speaker 2: I was like, that was worth it, Yeah, exactly.
Speaker 3: But what other things actually influence that things.
Speaker 2: Will that will influence is obviously how many comparatible sales
Speaker 2: that the bank has got in the area versus, you know,
Speaker 2: a more rural property, is there less on the market
Speaker 2: when was last one sold. That type of thing is
Speaker 2: going to have a big influence on if they can
Speaker 2: just do a straightforward, like you said, online valuation or
Speaker 2: a desktop valuation versus if they actually need to go
Speaker 2: out in person. So that can have a pull on
Speaker 2: what the bank sort of, like I say, spits back
Speaker 2: as a first valuation of the property. But we can
Speaker 2: always sort of push back on that if we don't
Speaker 2: think that that's accurate enough, And like you said, if
Speaker 2: we need to get someone out there, we will.
Speaker 3: Yeah, and we've done it before, and like I don't
Speaker 3: want to set this expectation to hybrid for clarity's sake.
Speaker 3: We've gotten a bank valuation back from a property that
Speaker 3: we weren't happy with, and yeah, we could get them
Speaker 3: to go back out and revalue it. But we've also
Speaker 3: gone to other banks before to be like, don't really
Speaker 3: like your valuation, don't believe it. Our neighbors literally sold
Speaker 3: for two hundred and fifty thousand dollars more, and we
Speaker 3: have the same townhouse wide that feels like you didn't
Speaker 3: take that into consideration. We're just going to go get
Speaker 3: a different bank valuation.
Speaker 2: We do see that quite often. So just because you
Speaker 2: get fun valuation back with one bank, that's not the
Speaker 2: end of it. I guess. We've definitely had where we've
Speaker 2: gone to another bank or two, two to three other banks,
Speaker 2: I guess, and completed valuations and we have seen valuations
Speaker 2: come in even one hundred and fifty thousand dollars more
Speaker 2: than the other one.
Speaker 3: So it get a good broker who's actually going to
Speaker 3: put the effort in as well, because some brokers will
Speaker 3: be like, well, sorry, Jacqueline, that's just what your vowl
Speaker 3: came back as because they're not willing to not shop
Speaker 3: it around but get a second opinion, And like, you
Speaker 3: want a broker like and this is obviously I'm so biased,
Speaker 3: because I obviously love Zella and I love the team,
Speaker 3: and I think that we do a really good job.
Speaker 3: But you want a broker that is on your team.
Speaker 3: Like if you've said to your broker, look, I really
Speaker 3: want to do this right now, and it's two hundred
Speaker 3: and fifty grand, and then you know the vowels come
Speaker 3: back and told you that you probably can borrow one
Speaker 3: point eighty. Like a lot of brokers will be like, well,
Speaker 3: that's just what you can borrow, whereas we'll be like, nah,
Speaker 3: I reckon. We could get another valuation that would tip
Speaker 3: it over and like work out what goes on here
Speaker 3: and here, Like it becomes like a game twice like
Speaker 3: and I don't I mean that in the most professional sense,
Speaker 3: but sorry, there's a like there's it's like a game.
Speaker 3: You've just told me that it's worth this, and like,
Speaker 3: you know, if I genuinely believe it's more or I've done.
Speaker 3: We're not silly. We work with property every day. Like again,
Speaker 3: if you saw your neighbor sell for more, or like
Speaker 3: three townhouses that you think have similar specs have gone
Speaker 3: fifty grand over that, I want a second opinion. Yeah,
Speaker 3: it's like a doctor.
Speaker 2: Make it work, but it's going to get us the
Speaker 2: outcome that we want.
Speaker 3: And I want my clients to be like, yeah, Jack
Speaker 3: was the best, or working at Zella was the best. Yeah,
Speaker 3: because we tried really hard for that reputation. Not gonna lie.
Speaker 3: So Jack, let's go back to that nine hundred thousand
Speaker 3: dollar example. Let's say I have a house and I
Speaker 3: reckon it's worth about nine hundred grand and on my
Speaker 3: loan there's five hundred thousand dollars still sitting there. If
Speaker 3: I came to you, ad Zella, what other things that
Speaker 3: you were going to look at to see if I
Speaker 3: can actually borrow the equity? Like, what are you going
Speaker 3: to go through? How's that conversation going to go?
Speaker 2: Yes, So we're going to obviously look at what the
Speaker 2: property value roughly is, and like you said, we can
Speaker 2: We're not stuck with one lender. We can look at
Speaker 2: multiple lenders and see what they come back with. But
Speaker 2: we're going to see as a rough amount how much
Speaker 2: equity you do have.
Speaker 3: If you're one of our bdms and you're listening to
Speaker 3: this episode because you're like, wow, Zella is on an episode,
Speaker 3: just turn it off and pretend that you never heard
Speaker 3: that we would shop it around. We would not do
Speaker 3: that too, you guys. We are layer our one and only,
Speaker 3: one and only. We would never play you off against
Speaker 3: each other. That would just be kind of low key
Speaker 3: rude and in the best interest of the client.
Speaker 2: Yeah, but we're going to look at obviously equity as
Speaker 2: a number one. We're going to see which different banks
Speaker 2: are going to allow us to go up to which
Speaker 2: type of LVR, So thanks are going to have a
Speaker 2: US cut it off at seventy percent of YA, some
Speaker 2: will be at eighty percent, and some will allow us
Speaker 2: to go above eighty percent. But we're now in ALUMI space,
Speaker 2: so lend us Morgan insurance. How much is that going
Speaker 2: to look like if we do go above eighty percent?
Speaker 2: And also the third one obviously borrowing capacity, So yes,
Speaker 2: we need to make sure that what we're looking to
Speaker 2: take out that we can actually service that and what
Speaker 2: that looks like.
Speaker 3: Yeah, and the bank's also going to be like, hey, Jack,
Speaker 3: why do you want to access your money and assess
Speaker 3: that as well? And I think that sometimes it sounds
Speaker 3: really really cool, and I just want to dispel this
Speaker 3: for a hot second, because, like I mean, we're in
Speaker 3: the middle of a cost of living crisis, so everyone's
Speaker 3: trying to work out how to get more money.
Speaker 2: What that looks like?
Speaker 3: You know, we just need a little bit of like
Speaker 3: wiggle room, and you might go, we could probably use
Speaker 3: the equity, but we might assess your incomes right now,
Speaker 3: and unfortunately you can't access that equity because you can't
Speaker 3: pay back the additional loan because you're already living like
Speaker 3: paycheck to paycheck in a way, and I find that
Speaker 3: really disheartening for the client. Yeah, so like talk to
Speaker 3: us still because we want to make a plan and
Speaker 3: like every single like Zella Broker is going to make
Speaker 3: sure that you have a budget, you have a cash loo,
Speaker 3: and you do all of that stuff. But I think
Speaker 3: also to set clean expectations, you can't just pull it
Speaker 3: out and be like, oh, this is wiggle room. Yeah,
Speaker 3: especially if you're already strapped for cash because your loan
Speaker 3: is going to increase and they might go well on
Speaker 3: your incomes, you can't pay back reasonably and therefore no
Speaker 3: and that can be really disappointing if you've kind of
Speaker 3: unlocked that idea in your head. I been like, this
Speaker 3: is the thing that's going to give us some breathing room,
Speaker 3: same as.
Speaker 2: It's not changing employer. Yeah, so obviously you might have
Speaker 2: equity available you want to pull it out. If you've
Speaker 2: changed employer where you've gone to say maybe casual, you
Speaker 2: might need to stay at that job for six months
Speaker 2: before you can access it. Doesn't just mean that because
Speaker 2: you are currently employed that you have the ability to
Speaker 2: pull out the equity.
Speaker 3: Yeah. Now you've worked for Zella for years and we're
Speaker 3: really lucky. We have thousands of clients, and I would
Speaker 3: say that you've seen thousands of applications go through. What
Speaker 3: things make you go, m this is going to be
Speaker 3: an issue when you see it pop up.
Speaker 2: Going back to I guess employment type starting LBR, so
Speaker 2: where you're already currently at and where you're trying to
Speaker 2: get to, recently left your employer so recently quit or
Speaker 2: again looking for new employment.
Speaker 3: I would say maternity leaf. I think a lot of people,
Speaker 3: and this is not a bad thing, but I think
Speaker 3: a lot of people are like, well, I'm on matt leave,
Speaker 3: I still have an income, i still have solid employment.
Speaker 3: That's not how banks see it. No, and we're not
Speaker 3: saying that that's fair. That's just the game that we're playing.
Speaker 3: If you're on maternity leave, very often we have to say,
Speaker 3: let's wait until you're back in your job and then
Speaker 3: we can work it out because the banks are very conservative.
Speaker 3: It makes me very frustrated, but the banks are very
Speaker 3: conservative about it.
Speaker 2: Yeah. It's not a cold, hard no, No, it's just
Speaker 2: obviously a little bit trickier.
Speaker 3: Yeah, and it definitely limits options I would say, say,
Speaker 3: you and I are looking at my loan and we
Speaker 3: can access equity. That looks really good, But I've got
Speaker 3: forty thousand dollars worth of personal consumer debt. Can I
Speaker 3: just roll that into my homeland? I feel like that's
Speaker 3: a common question.
Speaker 2: You certainly can, but you again, you need to speak
Speaker 2: to your bank or broker if that's going to be
Speaker 2: beneficial to you and how that's going to look. There
Speaker 2: is two types of ways to structure it. You can
Speaker 2: obviously add that consumer debt directly onto your existing home loan,
Speaker 2: make it one repayment that could be for the time
Speaker 2: frame of say thirty years your existing loan, keeping down repayments,
Speaker 2: and you might be happy with that.
Speaker 3: Are you happy with that?
Speaker 2: Yeah? You're also paying interest over thirty years on that
Speaker 2: portion as.
Speaker 3: Well, so be more expensive. So you think you're lowering
Speaker 3: your interest rate, but you're increasing your time paying that back,
Speaker 3: which means it's probably going to be more expensive.
Speaker 2: Yeah. Another option that you can look at is doing
Speaker 2: say a split for that forty thousand dollars over say
Speaker 2: a much smaller loan term, say seven years, and that
Speaker 2: interest rates obviously less than what you're already paying maybe
Speaker 2: at fifteen percent for a personal loan because now it's
Speaker 2: on a home loan rate, but therefore you're still paying
Speaker 2: it back within a.
Speaker 3: Time, same period of time.
Speaker 2: Yeah, just because you pick one way does not mean
Speaker 2: that you're stuck in that structure forever. Yeah, you might
Speaker 2: say adding the consumer debt to the home loan and
Speaker 2: making it one repayment and the smallest amount of repayments
Speaker 2: today is the best for me, just to keep my
Speaker 2: payments down and then when things change in a year's
Speaker 2: time you've got more cash flow, you might look at
Speaker 2: splitting off that portion and just trying to mashing it down,
Speaker 2: smashing it out and say five years and getting rid
Speaker 2: of it. It doesn't mean that you're stuck. If you
Speaker 2: choose one way now, you can always chop and change it.
Speaker 3: You just got to reach out and you don't have
Speaker 3: to work that out yourself. Your broker can give you
Speaker 3: a plan for that. By the way, Like it's not
Speaker 3: you have to come. We can just like facilitate that. No,
Speaker 3: we'll give you the plan of getting out of debt.
Speaker 3: Because one of the things that I would say a
Speaker 3: good broker does is flag things that are not going
Speaker 3: to be in your best interest long term. So you
Speaker 3: might go, well, my homelan interest rate is sitting at
Speaker 3: five percent, I'd prefer that the my fifteen percent personal
Speaker 3: loan rate. Jacqueline's going to sit down and be like, yes,
Speaker 3: but over thirty years, this is what this looks like.
Speaker 3: But we can still do it. If you made additional
Speaker 3: contributions to your mortgage at that fifteen percent, right, we
Speaker 3: could probably get rid of it in like two years
Speaker 3: instead of the five that you still had left on
Speaker 3: that personal term. And then also we could use that
Speaker 3: money to consistently contribute to it after it's gone and
Speaker 3: get down your mortgage exactly, pay less interest. And that's
Speaker 3: really sexy. So there's lots of strategy that we can
Speaker 3: give you, but you kind of need to start the conversation.
Speaker 3: Jack going back to lenders, when they look at equity usage,
Speaker 3: they're kind of really reading into like risk signs and going,
Speaker 3: is this risky because like they're more likely to go, oh,
Speaker 3: she wants to borrow one hundred grand to put another
Speaker 3: bedroom on the back of the house. Yes, that's pretty sexy.
Speaker 3: That's going to add value to the property that we're
Speaker 3: already financing.
Speaker 2: Security.
Speaker 3: Yeah, Green flag. That sounds really good. Victoria Devine wants
Speaker 3: to buy a boat and call it boating boat face.
Speaker 3: That's probably a lot more risky. Is that going to
Speaker 3: hold its value over time? What's it going to cost her?
Speaker 3: Why is she going to do it? They're probably and
Speaker 3: a look into in the background, just like, Okay, well
Speaker 3: she'll have boat maintenance fees? What does that look like?
Speaker 3: There's lots of weird questions that you might not have
Speaker 3: thought of. Do you see that some lenders are more
Speaker 3: conservative on letting you have equity than others? Maybe others
Speaker 3: are more flexible definitely, Like so I could get bodymic
Speaker 3: boat face, but it might not be the most conservative
Speaker 3: bank you can.
Speaker 2: But you're right, not every lender is probably going to
Speaker 2: allow you to do that. And like I was saying before,
Speaker 2: there are different LVR restrictions with different lenders. So some
Speaker 2: might allow you to only go up to seventy percent
Speaker 2: because that's where they draw the line and say it's
Speaker 2: less risk adverse. The most common, sorry, would be eighty percent.
Speaker 2: And then again in some cases they'll allow you to
Speaker 2: go above eighty percent. I guess for the right reasons.
Speaker 2: In that case, Bodymic boat Face eighty percent of ya
Speaker 2: is probably going to be really hard to get across
Speaker 2: the line.
Speaker 3: That's really disappointing, all right. To deal with my disappointment,
Speaker 3: I think that we should take a really quick break,
Speaker 3: and when we get back, I want to get into
Speaker 3: things that you need to think about before you're actually
Speaker 3: using your equity. So guys, don't go anywhere. We are
Speaker 3: talking about absolutely everything equity today with Jack Lan Jack.
Speaker 3: Who does using equity tend to.
Speaker 2: Work really well for bridging clients?
Speaker 3: Bridging clients? Tell me more so.
Speaker 2: I guess if you're talking to an elderly couple and
Speaker 2: they were looking to downsize their property, they're going to
Speaker 2: use the equity in their existing property to purchase a
Speaker 2: new property and then sell the other property. The same
Speaker 2: goes for I guess a young couple with a family. Yeah,
Speaker 2: they might just want to move straight from A to
Speaker 2: B and not move from one property to a rental
Speaker 2: back to the new purchase. So if you've got a
Speaker 2: lot of equity, bridging is an option.
Speaker 3: Yeah. Is that the same as bridging finance though? Yes,
Speaker 3: so that's exactly what bridging finance is correct, use it?
Speaker 2: Yeah?
Speaker 3: No, but I think it's really important to clarify that too,
Speaker 3: because I think a lot of people think bridging finances
Speaker 3: these very very separate loan that you go and get,
Speaker 3: which you can be like, we can go and get
Speaker 3: additional finance to make it up if you don't have
Speaker 3: equity inner property that you are purchasing today with the
Speaker 3: promise that you will sell your property to extinguish that loan.
Speaker 3: But like that's kind of where it can be not
Speaker 3: so risk averse. So like there are bridging products, and
Speaker 3: these bridging products are usually more expensive. But this is
Speaker 3: a way of doing it at your current interest rate.
Speaker 2: Correct, But you would need to have quite a lot
Speaker 2: of equity to be able to do that, because most they.
Speaker 3: Said old people, Well, I mean old people do have equity.
Speaker 3: They've had more time to pay off.
Speaker 2: The generally speaking, yes, they've either sat on their property
Speaker 2: for some time and the property values have gone up,
Speaker 2: or they have made a lot of additional payments over
Speaker 2: that time.
Speaker 3: So if your parents want to do this, you send
Speaker 3: them to us, because we really like those loans. They're easy,
Speaker 3: they're really fun. Your mum's probably really fun as.
Speaker 2: Well, like symp them does Ella, we'll have a cup
Speaker 2: of tea.
Speaker 3: We may create tea.
Speaker 1: We do.
Speaker 3: We drink a lot of tea in our office on
Speaker 3: the flip side. Who doesn't it.
Speaker 2: Work for someone that's teetering on the edge of a
Speaker 2: high ALVR already? And like I said, because some people
Speaker 2: can go over that eighty percent. Some people have come
Speaker 2: to us before and thought, I would like to deconsolidate
Speaker 2: and look at adding the existing loan, pay that off
Speaker 2: and add it to my mortgage. But that's pushing them
Speaker 2: over an eighty percent LVR, which is adding lender's Morga insurance,
Speaker 2: which is also pushing up their interest rates. So when
Speaker 2: taking it into account the fees, the charges, and all
Speaker 2: of that as a whole, it's not beneficial for them
Speaker 2: to be looking at doing something like that.
Speaker 3: Yeah. One of the things that I often talk about,
Speaker 3: and not necessarily on the podcast, but just in general,
Speaker 3: is I hate and I can be a little bit
Speaker 3: more aggressive because you won't see me as your broker.
Speaker 3: You get actually is much nicer. But I hate that
Speaker 3: people sometimes use equity to manage their lifestyle creep because
Speaker 3: I feel like it just slips through your fingers, Like
Speaker 3: if you're like, oh, well, we'll just release some equity
Speaker 3: and we'll be fine later, go on this holiday, we'll
Speaker 3: upgrade our cars. We'll do this, Like the money doesn't last,
Speaker 3: and then you need to find a way to keep
Speaker 3: up with the life style that you've just built again
Speaker 3: with releasing equity, Like, that's not a cycle you can
Speaker 3: keep up with. That's a cycle of you going into
Speaker 3: more and more debt or not getting ahead when it
Speaker 3: comes to wealth creation.
Speaker 2: And your property value can dip over time as well,
Speaker 2: So that's something that you need to be mindful of too,
Speaker 2: just because you could go up to these lvrs and
Speaker 2: take out additional funds for whatever reason. If your property
Speaker 2: value did decrease over time, what does that look like?
Speaker 2: Are you going to end up selling and not making
Speaker 2: a dime off that?
Speaker 3: And do you sell boating? Make boat face?
Speaker 2: I know that's the last thing we want to do.
Speaker 3: No, but like it can be And I think that
Speaker 3: that's where people go, well, I'll just sell it. And
Speaker 3: it's like, well, that's a decreasing asset, Like that's not
Speaker 3: going to be worth the same as what it was before.
Speaker 3: So even if later down the line you're like, oh
Speaker 3: well we'll sell the boat and put that back in
Speaker 3: the mortgage, you're not going to be at the position
Speaker 3: that you were before, correct, So I think that's really
Speaker 3: important to take into consideration. That's why I said, you're
Speaker 3: not going to like me. It's a bit blunt. Don't
Speaker 3: use it for lifestyle. Do you ever tell clients that
Speaker 3: they shouldn't use equity or you as blunt as me?
Speaker 3: Do you go you shouldn't be doing this even if
Speaker 3: they technically can.
Speaker 2: Yes, but that's because I'm providing them with the facts
Speaker 2: as to why they shouldn't. And yeah, I'll give you options,
Speaker 2: I'll let you have a look over it, and then
Speaker 2: i'll sort of give my recommendation as to why. But again,
Speaker 2: like you said before, it's completely up to the client
Speaker 2: if they want to proceed with that or not.
Speaker 3: But yeah, and I think that we talk about this
Speaker 3: a lot in the office because we've got such a
Speaker 3: beautiful and diverse client range. Like we do do people
Speaker 3: who are downsizing, we do do first home buyers, we
Speaker 3: do do people who are accessing equity to pay down debt,
Speaker 3: like we do all of these things. But sometimes when
Speaker 3: there's a like, ah, like, let's chat this through. I'm
Speaker 3: about to have a conversation with a client where I'm
Speaker 3: going to tell them that I don't think their idea
Speaker 3: is a good idea. And it's always like we'll tell them, like,
Speaker 3: I think our business is very pro just be honest,
Speaker 3: be kind, but be honest, because I would prefer the
Speaker 3: client to be in a better position and go, you
Speaker 3: know what, Jack, you're right, don't write the loan and
Speaker 3: they walk away and we make no money. That feels
Speaker 3: like a better ethical position to be in.
Speaker 2: Yeah, then oh.
Speaker 3: Yeah, well yeah, maybe you shouldn't, but like the loan
Speaker 3: will go through and it'll be easy just to get
Speaker 3: no pay.
Speaker 2: Every time I've given feedback as to why that they shouldn't,
Speaker 2: I feel like the clients have always been really thankful
Speaker 2: and actually listen to us. I don't think it's a
Speaker 2: case of just like, oh, well, I'm going to do
Speaker 2: it anyway, I'm going to go to another lender, like.
Speaker 3: Right, I haven't really Yeah, And it does make us
Speaker 3: feel a little bit bad when we have to have
Speaker 3: a hard conversation. No one wants to have a hard conversation.
Speaker 3: We're willing to do it, but no one wants to
Speaker 3: do it. So what questions should someone ask themselves before
Speaker 3: they're going to use their equity. So I've decided yep,
Speaker 3: I can. Maybe I've already spoken to you and you're like, yeah,
Speaker 3: you can actually access one hundred thousand dollars worth of equity.
Speaker 3: What am I asking myself before going yeah, let's pull
Speaker 3: the trigger on that?
Speaker 2: Yeah? I mean is it going to be beneficial? How much?
Speaker 2: Because both face no, okay, yeah, is it going to
Speaker 2: be beneficial? I guess for the future. How much equity
Speaker 2: do I have? What happens if the property value drops?
Speaker 2: What does that look like? What's my exit strategy? If
Speaker 2: we're purchasing a new investment are we looking at the
Speaker 2: risks for that as well? Like you said that, the
Speaker 2: different lenders are going to look into different things. So
Speaker 2: if we did say that we were going to be
Speaker 2: purchasing using the deposit to purchase a new investment property,
Speaker 2: there are additional expenses that need to be captured. So
Speaker 2: therefore it can reduce your borrowing again.
Speaker 3: Yeah, because we're looking at stamp duty and you're not
Speaker 3: going to get the concessions that you got when you're
Speaker 3: a first home buyer.
Speaker 2: Yeah. Yeah, I mean it's also going to restrict your
Speaker 2: future borrowings as well, So you're taking on more debt. Therefore,
Speaker 2: it's going to limit what you can do in the
Speaker 2: future too. So if you had a plan of you know,
Speaker 2: purchasing the property in five years time, is taking out
Speaker 2: one hundred thousand dollars for bo boat face the best
Speaker 2: option right now?
Speaker 3: Yes it is, And thank you for making me question it.
Speaker 3: I'm doubling down. But I do think that that's really
Speaker 3: important because like I laugh about boating boat face, but
Speaker 3: it's like, that's a lifestyle decision, and I think that
Speaker 3: that trivializes it in a way. You go, well, that
Speaker 3: would be silly, Victorian, and go, well, yes, that's why
Speaker 3: I'm saying it in a silly way, because I don't
Speaker 3: want you to be funding your lifestyle through equity. That
Speaker 3: could if you've got access to one hundred grand, that's power. Yeah,
Speaker 3: like that is you could do some really cool stuff.
Speaker 3: You could build a share portfolio, you could put an
Speaker 3: extension on the house and you know, add value that
Speaker 3: way by an investment property. Like, there are so many
Speaker 3: cool things you can do with equity that I just
Speaker 3: get a little bit like, no, what are you doing
Speaker 3: when people cash it out for reasons that I go,
Speaker 3: that's not going to help future you. I also think
Speaker 3: if you're going to like what else should you be
Speaker 3: looking at? If you in your head are like, well,
Speaker 3: we're going to do an extension, have you actually gone
Speaker 3: and gotten quotes, like if you and your head are like, oh, well,
Speaker 3: one hundred grand should be enough to cover that. In
Speaker 3: this economy, nothing is promised, So like, go get quotes
Speaker 3: from builders what would it cost to put this on?
Speaker 3: Or if you're renovating the kitchen or the bathroom or whatever,
Speaker 3: go get at least three comparable quotes so that you
Speaker 3: know average what it's going to cost. Because I feel
Speaker 3: like building at the moment is absolutely blowing out. Like
Speaker 3: most of our clients who are building, it's stressful because
Speaker 3: they keep coming back and being like, oh, we've gone
Speaker 3: over ten percent, or you know, we didn't realize that
Speaker 3: this wasn't factory in, or our builders come back and
Speaker 3: said this material is actually more expensive because we didn't
Speaker 3: get in on the cutoff and the pricing create it's
Speaker 3: actually chaos. And you're laughing because I know you've just
Speaker 3: gone through this personally with a reno. I went through
Speaker 3: it with my reno and like never again.
Speaker 2: Yeah, So every reear stress too, are.
Speaker 3: There any other smart ways that you've seen people use
Speaker 3: their equity apart from like investing.
Speaker 2: I'd say the biggest one would be purchasing an investment properly,
Speaker 2: like using the funds for a deposit to eliminate the
Speaker 2: need for lenders morg insurance on the other side, Yeah,
Speaker 2: I guess cash flow is tightened up, and therefore majority
Speaker 2: of people's funds is going towards the mortgage and reducing
Speaker 2: the current home loans. So a lot of people don't
Speaker 2: tend to have, you know, a large savings just sitting
Speaker 2: in their accounts right now. It's all tied up in equity.
Speaker 3: We've talked about the risks of equity obviously, like you're
Speaker 3: not being able to afford it your cash flow, you know,
Speaker 3: being a little bit more snug whatever. Even property going
Speaker 3: down in value and you're going, excuse me, that's not
Speaker 3: what I expected. Have you ever seen something go really
Speaker 3: wrong with an equity release. I just want to scare
Speaker 3: the community there.
Speaker 2: Well, yeah, obviously the property value dropping below what they've purchased. Therefore,
Speaker 2: you know, if you're at a ninety percent LVR and
Speaker 2: the property dropped, you know, by ten percent, and therefore
Speaker 2: you looked at selling, you actually need to make additional
Speaker 2: repayments to the bank to pay back that property.
Speaker 3: Yeah, you don't actually extinguish all the debt by Yeah,
Speaker 3: you could.
Speaker 2: End up with, like I say, a forty or fifty
Speaker 2: thousand dollars additional loan even when the property's gone and
Speaker 2: you've sold and you're still having to make repayments back
Speaker 2: on it. So you do need to be really careful
Speaker 2: about sort of how much you're taking out and what
Speaker 2: the use is for.
Speaker 3: Yeah, And that's why even if you went to your
Speaker 3: bank originally and got your first home loan it and
Speaker 3: it was all hunky dory and it went really well fantastic.
Speaker 3: That's why if you're thinking about an equity release, please
Speaker 3: just talk to a broker one to get the right situation,
Speaker 3: but so that they can do the strategy, because the
Speaker 3: bank isn't going to look at your personal circumstances and
Speaker 3: be like, so are you planning kids soon? Like what's
Speaker 3: your life plan? Got any big events coming up? Any holiday? Like,
Speaker 3: they don't give two flying ducks. What they care about
Speaker 3: is can you afford it? They're on the numbers and
Speaker 3: you're like, yeah, we'll release that out no aries, Like
Speaker 3: you'll probably have a drop down menu of why you
Speaker 3: want the equity to be released. Maybe I've had a plan,
Speaker 3: but there's a drop down menu of why you would
Speaker 3: want to release your equity, and they'll be like, yeah, sweet.
Speaker 2: Notion like that.
Speaker 3: Don't even care. People even get equity out and lie
Speaker 3: to the bank. I'm not saying this is a good idea,
Speaker 3: but they might be like, it's for renovation. Then all
Speaker 3: of a sudden, they've spent it on boating boat face
Speaker 3: Like that happens because once the equity is released, it
Speaker 3: just goes into your bank account like it's actual cash
Speaker 3: you've got access to. And so for me, that's a
Speaker 3: risk as well not having a solid plan for your
Speaker 3: equity once it hit your account. Like one of the
Speaker 3: things that I would say is if you are accessing
Speaker 3: equity and you're not, you know, using it for a
Speaker 3: home deposit or something immediate, make sure it goes into
Speaker 3: your offset account immediately immediately.
Speaker 2: Yeah, so it just sits the funding.
Speaker 3: The day you get your funding, that money goes straight
Speaker 3: into your offset account and sits there, and it will
Speaker 3: sit there for the entire time that you're doing your renovations.
Speaker 3: And drawing down on it, don't have it go into
Speaker 3: a separate savings account, like at least offset the interest
Speaker 3: on your mortgage for the time being, because like, if
Speaker 3: you're renovating, it might be like, who knows, I'm making
Speaker 3: this schedule up right, it might be like twenty percent
Speaker 3: upfront to get the builders, and then you get to
Speaker 3: fifty percent and you're not even paying the rest of
Speaker 3: it off until twenty twenty seven. And that's fine, but sorry,
Speaker 3: that money should be working for you while it's in
Speaker 3: your hands, because you can't invest it in their short
Speaker 3: term like that's not an option. I feel like that's
Speaker 3: a good little situation to be in. But then also
Speaker 3: be really open with your broker about your life and
Speaker 3: your circumstances and what's going on. Because one thing that
Speaker 3: we've sayd all a couple of things actually that come
Speaker 3: to mind is if you're planning on changing jobs soon
Speaker 3: and you go, no, it's fine, like I'm getting a promotion,
Speaker 3: like in theory, that sounds really good, but banks don't
Speaker 3: like job change. So like even if you come to
Speaker 3: me or come to us and say, hey, I want equity,
Speaker 3: and we're halfway through the application and then you call
Speaker 3: us and you're just getting an update on your loan
Speaker 3: application process or whatever, and then you go, oh, Jack,
Speaker 3: by the way, oh my god, I got a new job,
Speaker 3: Like you would think that as a beautiful client. We're
Speaker 3: so excited for you. Yeah, that is alarm bells to us.
Speaker 3: That is terrified, is it not, Jack?
Speaker 2: Yeah, your mind's already gone elsewhere. It's like, how can
Speaker 2: I fix this? Yeah?
Speaker 3: Yeah, because some banks will then be like, yeah, you
Speaker 3: were preapproved, you were accessible for that, but now you've
Speaker 3: got this new job. You need to get through probation
Speaker 3: on your new job before we're willing to give you
Speaker 3: access to that cash, and they might cancel the thing
Speaker 3: completely and we have to update the bank on that.
Speaker 3: We can't be deceptive. And another one is people are like,
Speaker 3: should I be using my equity now now for like
Speaker 3: a reno before we have kids?
Speaker 2: I was about to say this one, Yeah, so you
Speaker 2: need to do Yeah.
Speaker 3: So what's the answer there. Should we be releasing our
Speaker 3: equity before we have kids and doing the reno? Now?
Speaker 3: Do we just wait until we have kids and then
Speaker 3: release the equity?
Speaker 2: I mean, obviously you can do it either way. However,
Speaker 2: if you're going to take the equity at now and
Speaker 2: then you're going on maternity leave. You need to make
Speaker 2: sure you're already factored into account this extra borrowing and
Speaker 2: extra payments that are going to be coming out, because
Speaker 2: just because you're borrowing it now and then you're going
Speaker 2: on maternity leave, your payments don't stop, so you need
Speaker 2: to make sure you've taken that into account.
Speaker 3: Your cash flow is so important. Yeah, isn't it funny?
Speaker 3: You're like process and structure and driven and the like
Speaker 3: cash flow, budget, money, cash flow, cash flow. I'm just
Speaker 3: a broken record at this point. Anyway, I feel like
Speaker 3: we have clocked what it means to use your equity,
Speaker 3: access your equity, what equity means. We have so many
Speaker 3: educational posts when it comes to like information about mortgages
Speaker 3: and information about equity, et cetera on our Zeala Journey Instagram.
Speaker 3: So we'll make sure that all of that is linked below.
Speaker 3: And I'll also be really brazen and just put the
Speaker 3: links so that you can book with one of our
Speaker 3: Zello brokers should you want to do that in the
Speaker 3: show notes as well. Jack, thank you for being on
Speaker 3: the show again. I know this is one of the
Speaker 3: topics that gets talked about a lot in our community,
Speaker 3: and I know that they love it when you're on
Speaker 3: the show, so I married them together. You guys are
Speaker 3: so very welcome. And if you're thinking about your own
Speaker 3: situation and you want to understand all of your options,
Speaker 3: obviously I've put all of Jack's links and my links
Speaker 3: and the Zella links in the show notes. And if
Speaker 3: this has helped demystify equity for you, please make sure
Speaker 3: you share it with someone who keeps saying that they
Speaker 3: might use their equity one day. And of course hit
Speaker 3: subscribes so that you don't miss an episode. And guys,
Speaker 3: we will see you, not Jack, but we will see
Speaker 3: the rest of you on Friday for Friday Drinks. Bye Bye.
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