Refinancing to access equity
Value, current debt, available amount and use of funds.
Calculating the available amount
Take the property value, apply a percentage, then subtract existing debt.
Common percentages
- Seventy-five percent on a residential building
- Sixty-five to seventy-five percent on commercial
- Less when leases are short or the building is vacant
Use of funds
The lender asks what the money is for. A precise answer speeds up the review.
A worked example
A property is worth six hundred thousand dollars. The lender accepts seventy-five percent.
Current debt is three hundred thousand. That leaves one hundred fifty thousand available.
What to subtract next
- The penalty on the current loan
- Appraisal and legal fees
- Opening fees on the new loan
- Any overdue taxes
The effect on the payment
A larger loan means a larger payment. Check that income keeps up.
What the lender wants to avoid
They want to avoid funds covering an operating shortfall.
A productive use reassures: work, acquisition, repaying costly debt.
Explain that use in one page, with figures.
What the operation costs
Add the penalty, the appraisal and the legal fees.
Compare that total to the amount you unlock.
On a small amount, fees can outweigh the benefit.
