Question from Lynda updated on 3rd October 2016:
Having enough equity to go again is one thing, but being able to *service* that equity is something else! What is the best way to service equity in order to move on to another deal?
Our expert Kris Pedersen responded:
This is quite a complex issue. There is the actual "servicing of the loan, which is where you need to do your own budgeting to make sure you can afford any obligations you take on. Then there is the way the banks look at the situation.
Firstly, in most cases, lenders are only taking 75% of the rent into consideration for servicing purposes. Then, in most cases, lenders assess the debt you have and the debt you may be looking to get on higher 'qualifying' interest rates. Also, this debt will often be assessed on a principal and interest basis even if you are looking to structure your loans on an interest-only basis.
But there are exceptions to the above which is why it can be important to approach lenders in a particular order if servicing is likely to prove a hurdle. However, also note that these calculators are always changing so what may work today may not work in a year's time.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz