How Much Of Your Home Equity Can You Cashout?

Lenders have adopted stricter lending policies on equity release and cash out amidst the uncertainty and the negative economic outlook caused by the novel coronavirus pandemic.

Equity release: What has changed?

• The maximum equity you can access is still 90% of the property value, however, this is now case by case and is harder to qualify for. For cash out (equity release), lenders prefer lending up to 80% of the property value.
• Some lenders are no longer offering cash out to self-employed borrowers. We still have lenders that do.
• Unlimited cash out amount is still available; however, please note that some lenders do have restrictions.
• Lenders are heavily scrutinising/verifying that the borrower’s income and employment is stable and ongoing. E.g. banks want to see pay slips no older than 14 days when you submit your application. Some also require an employment letter.
• Lenders’ turnaround times have increased with some taking up to 20-30 business days just to pre-assess your application, some are completely unaffected. So if you’re looking for a fast cash out refinance then applying with the right lender is key.

Do I need to provide evidence to release equity?

Lenders policy differ on this. But generally, anytime you’re borrowing more than 80% of the property, you’re required to provide documentation for the equity release (cash out).

• If you’re purchasing a property, then a contract of sale (COS) is required.
• If renovating, a building contract is required.
• If purchasing shares, a statutory declaration may suffice.

When borrowing less than or up to 80% of the property value, a stated purpose is acceptable (no evidence required).

Case study: Equity release

Loan Purpose

Refinance his existing three properties and release equity (cashout) for a future property purchase.

Problem

At first glance, the deal looked straight forward with enough equity in the properties to get the amount the customers was looking for.

The customer wanted a cash-out of $200,000, so we ordered an upfront property valuation for all the properties.

However, the property valuation came in very low.

• Investment property 1 value based on the new bank valuation: $750,000
• Investment property 2 value based on the new bank valuation: $675,000
• Owner-occupied property based on the new bank valuation: $750,000

Total value = $ 2,175,000 Total mortgage = $1,627,000

At 80% LVR (loan to value ratio), the customer could release equity of $113,000.

Resolution

We had to settle for the maximum cashout we could get based on the valuation.

The bank had no issue with the cash-out and the approval was swift, a one-touch approval with no request for additional documents, i.e. (MIR – missing information request).

But after the formal approval, they requested to look into the client’s Individual tax returns to verify the income. It should come as no surprise that lenders are scrutinising incomes more thoroughly as an adjustment to the current COVID-19 environment.

So the income stability was the main concern rather than the cash-out.

When it was all said and done, the customer got a cashout refinance of $113,000 with a great interest rate and also qualified for a refinance rebate of $2,000.

Tips to get approved for an equity release

A lot of home owners looking to access the equity they’ve built up on their property may be surprised when their bank knocks back their application.

Here are some tips on how to get approved for an equity release under tightening lending policies:

• The main concern for lenders right now is on employment and income stability. So adding strong mitigants on the income by supplying a longer history of income with the same employer instead of just two recent pay slips.
• Even though, you may not need to provide evidence for the loan purpose, doing so is a great way to assuage some of the potential risk for the lender.
• Apply through a mortgage broker. Why? As mortgage brokers, we have built up working relationships with BDMs with almost 40 lenders on our panel. So, before we even submit an application we run the scenario past the BDM before applying and outline the scenario in detail. Then we provide all the documentation required as per the lender’s documents checklist. This ensures that the application goes through smoothly and that there are no delays or surprises later.

Key takeaways

• Lenders are tightening their policy on equity release (cashouts).
• We know what lender is offer what deal and what they require. As such, we can find you the right lender and structure the application in such a way so that we can get you a straightforward approval.
• The interest rates are the lowest they’ve ever been in the history of Australia.
• You can also potentially get refinance rebates with an equity release.
• We can order free upfront valuation for your properties.

Speak with one of our award-winning specialist mortgage brokers by giving us a call on 1300 889 743 or by filling in our short assessment form today to get started.