How to enter a loan that is secured by one asset and financing another asset (e.g. home equity loan)

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Loan secured by one asset and financing another asset

Some common situations where you may wish to model a loan that is secured by one asset and financing another asset are:

  • Using the equity in a family home to buy a new investment property
  • Using equity in an investment property to invest in shares

Some general tips for modelling these loans:

  • Always add loans to the financed asset, not the securing asset. This makes sure that the 'Financing' asset is filled in for you.
  • Review the fields in the 'Special borrowing options' sections on assets and loans and read the help text under the field to understand what the field is restricting
  • If there are multiple restrictions on borrowing, Pathfinder will adhere to the lowest number and will not violate any restrictions. For example if you have set the borrowing on a the home equity loan to be no more $100,000, but the available equity in the securing property is only $50,000, Pathfinder will not borrow more than $50,000.
  • If you have multiple loans financing one asset:
    • If the interest rates are different, Pathfinder will typically prefer the loan with the lower interest rate. If you don't like this, you can place more restrictions
    • If Pathfinder borrows too much on one loan and not enough on the other loan, then place more restrictions on the loan that is borrowing too much.

Relevant fields with examples

This is an overview of the key fields that need to be entered for each item.


Item to addFields to pay special attention to, so that borrowing is accurate

Example 1

Buy a new investment property where 80% of the value can be borrowed against the property itself, and the deposit (20%) and acquisition costs (5%) are borrowed against an existing home. The home also already has an existing mortgage.

Example 2

An existing property that is financed by a loan secured by an existing home

1Securing asset (asset 1)
  • Property value $
  • LVR

At the Current situation > Assets & loans step, add the existing family home, and fill in these fields as follows:

  • Property value $: $1,000,000
  • LVR: 80%

At the Current situation > Assets & loans step, add the existing family home.

2Any loans that are are also financing the securing asset
  • Financing
  • Balance

At the Current situation > Assets & loans step, add the existing family home mortgage (You can do this once you have added the home by clicking the Add loan financing family home or by clicking Add loans > Secured loan (left menu)).

On the loan, fill in these fields as follows:

  1. Financing: Family home
  2. Balance $: $500,000
  3. Secured by: Family home (this will be filled in when you fill in the 'Financing' field, so you just have to leave it)
At the Current situation > Assets & loans step, add the loan secured by and financing the family home.
3Financed asset (asset 2)
  • Maximum % of asset funded by loans
At the Cash flows & Goals > Review assets & loans step, add the new investment property and pay special attention to these fields:
  1. Property value $: $500,000
  2. In the Special financing section, edit the Maximum % of property funded by loans field: 105% (i.e. 80% loan against property + 20% deposit + 5% acquisition costs)
At the Current situation > Assets & loans step, add the investment property.
4Loan that is financing the second asset and is secured by the first asset
  • Financing: asset 2
  • Secured by: asset 1
  • Special borrowing options

Underneath the new investment property, clicking the Add new loan financing property and pay special attention to these fields:

  1. Name: New property mortgage secured by home
  2. Financing: New investment property (this is filled in for you because you clicked the Add this loan to this asset button.
  3. Secured by: Family home
  4. Special borrowing options > Set maximum as % of financed asset value: Fill in 25% (i.e. 20% deposit + 5% acquisition costs)

At the Current situation > Assets & loans step, add a loan and fill it in as follows:

  • Name: Property mortgage secured by home
  • Financing: New investment property
  • Secured by: Family home (this is in the Special financing section)


5Normal loans that are also financing the second asset
  • Financing: asset 2
  • Special borrowing options

Underneath the loan you just added, click the Add new loan financing property again, and pay special attention to these fields:

  1. Name: Property mortgage secured by home
  2. Financing: New investment property (this is filled in for you because you clicked the Add this loan to this asset button.
  3. Secured by: New investment property (this will be filled in by default, so you don't need to change it)
  4. Special borrowing options > Set maximum as % of financed asset value: leave as 100% (since we've already placed a restriction on the other loan, we can leave this optimise)

At the Current situation > Assets & loans step, add a loan and fill it in as follows:

  • Name: Property mortgage secured by home
  • Financing: New investment property
  • Secured by: New investment property (this will already be filled in, so you don't need to change it)
6Comments on modelling.

For 'Property mortgage secured by home' there are the following restrictions and Pathfinder will borrow no more than the lower number (i.e. $125,000):

      • According to the 'Special borrowing options' on this loan, a maximum of $125,000 can borrowed to finance the property (i.e. property value x Maximum borrowing as % of financed asset = 500,000 x 25%)
      • According to the home LVR and existing loan balances secured by the home, a maximum of $300,000 can be borrowed against the family home (property value x LVR - existing loans = $1,000,000 x 80% - $500,000)
    • For the second loan a maximum of $400,000 will be borrowed:
      • A maximum of $400,000 can be borrowed against the property (i.e. Property LVR x Property value = $500,000 x 80%)
      • For the 'Special borrowing' options, robot was chosen, which essentially means it isn't placing additional restrictions.

For the total borrowing to finance the property, the maximum that can be borrowed across all loans is $525,000 (i.e. property value x Maximum borrowing as % of financed asset = $500,000 x 105%). Luckily this matches the total maximum borrowing against all the loans, but if the numbers were different, Pathfinder would adhere to the lower number.

During data entry, if any data are inconsistent, you'll get an error. For example, if the property LVR is too low to cover the property balance and outstanding loan balances, you will get an error and you will need to correct it by changing one or more fields before you can solve.

Since all the loans are already existing, you just need to set your preferred repayment options at the Cash flows & Goals > Review assets & loans step.

Video - Purchase a new property using equity in family home

Video

Video - Enter an existing property's loan secured by family home

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Video - Results for loans secured by one asset, financing another asset

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