My $60,000 birthday present

For my birthday my bank is giving me $60,000.Pretty good present.

Well, OK it isn’t a present… it is a loan.

The bank has lent me part of the increase in the value of my property.

I bought my unit 3.5 years ago for $315,000. Now, according to the bank valuation it is worth $385,000 (note the property has increased by $70,000 but they have lent me $60,000 – see point one below).

I say this not because I am so smart but to show how property can increase in value (obviously it is not always going to happen like my example).

Also I’d like to show how little I have had to do. Since I bought the unit the only renovation work I have done is put in a new toilet!

I must admit there have been a few visits,  phone calls and letters over the years:

  1. Getting the strata to fix a leak from the above bathroom x 2
  2. Dealing with tenants – a few visits/phone calls to get things fixed

but aside from this I have simply paid the mortgage each month.

 How long would it have taken me to save this money? FOREVER!

 How it works

 I applied for a loan, and then showed the unit to a valuer acting for the bank.

A few weeks later – the banks have provided the loan documents to sign and are asking me where I want the money. 

With the money I plan to invest in shares- but with a little known twist.  (Stay tuned).

A few points to note

  1. Loan to valuation – The banks will usually only loan you a percentage of the valuation (i.e. the maximum loan would be $385,000 x 80%). If you borrow more than 80% you are usually subject to Lender’s mortgage insurance on the whole loan amount.
  2. You have to tell the banks what you are planning to do with the money. Although the banks are usually happy to lend you the money for personal things (such as a holiday but see point 3).
  3. Whether the interest is tax deductible depends on how the funds are used. (i.e. If you buy shares or property or business, etc. probably deductible  – however not deductible if you spend the money on personal things like repay Credit card or car debts, a holiday, etc.)
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