Browse Forums Home Finance 1 Feb 07, 2012 8:08 pm Wondering if any experts here could help us out? We are planning to renovate our home (currently valued by the bank at $700k). We owe about $340k on the home, so there's $360k in equity. Our intention is to maximise our equity redraw using a line of credit facility to the tune of $200k, then take the balance of the required monies as a construction loan. Total reno cost is somewhere between $400k-450k. We want to maximise the line of credit so that we can pay contractors directly and drive down the cost of the renovation. Using a construction loan, of course, means we need to pay the builder directly and incur the builder's mark-up. Our bank (CBA) has indicated it will only lend up to $100k for home renovations on the line of credit, and the balance we draw down is subject to a stamp duty charge. We understand from the loans officer at the bank that CBA is in general disinclined to lend too much against the line of credit, as historically loans of this type are frittered away on cars, holidays etc. Therefore, they refuse to loan anything more than $100k as a line of credit for home renovations, and levy the NSW Stamp Duty on the balance as a disincentive. We've been with the bank for around 15 years and don't really want to move away, but we're just wondering if there is a better way of structuring the loan, to give us flexibility to pay contractors directly and drive down the (frankly terrifying!) cost of the reno. Any advice would be greatly appreciated. Re: Renovation - line of credit vs construction loan 2Feb 07, 2012 8:29 pm Wow $100k max on a line of credit We are with a different bank and got way more than that, so that like you we could pay things more easily, and cheaply and it meant a lot less paperwork. Don't know of how else you could structure it though.... Re: Renovation - line of credit vs construction loan 3Feb 07, 2012 9:45 pm Sorry, I was a little unclear. They'll give us $200k but want to charge stamp duty on $100k of that. It's not a huge amount of money in overall scheme of things, but it bothers me that we are a long term client with an impeccable credit record and easily able to service the mortgage. Yet the bank is applying what appears to be an arbitrary rule and it's a difficult one to understand given we have DA approval and can easily demonstrate the costs for the build. Out of interest, which bank did you use? Renovating in Sydney, Australia. Blog: naiverenovator.blogspot.com.au Re: Renovation - line of credit vs construction loan 4Feb 07, 2012 11:51 pm srl ..... but it bothers me that we are a long term client with an impeccable credit record and easily able to service the mortgage. Yet the bank is applying what appears to be an arbitrary rule and it's a difficult one to understand given we have DA approval and can easily demonstrate the costs for the build. Let me begin by saying, I am no expert on the matter, but, have you asked them to take your application to credit, to see if they can waive this requirement? I live in WA, so I don't understand how the NSW stamp duty thing works, but, if it's not a government applied duty and something that the bank chooses to charge and isn't charged across the board (all banks, all customers) then perhaps it is something you could ask about? Just a thought..... There's a broker on this forum who usually comes up with very helpful information. His name's Michael and he works for somewhere beginning with S... I think. Re: Renovation - line of credit vs construction loan 5Feb 08, 2012 6:19 am srl Sorry, I was a little unclear. They'll give us $200k but want to charge stamp duty on $100k of that. It's not a huge amount of money in overall scheme of things, but it bothers me that we are a long term client with an impeccable credit record and easily able to service the mortgage. Yet the bank is applying what appears to be an arbitrary rule and it's a difficult one to understand given we have DA approval and can easily demonstrate the costs for the build. Out of interest, which bank did you use? We didn't pay stamp duty on any of it. We just had to sign a stat dec that it was all being used for work on the house and that instantly waived the stamp duty. They didn't question it at all. We use the big red W bank. Re: Renovation - line of credit vs construction loan 6Feb 09, 2012 11:20 pm caz_770 Just a thought..... There's a broker on this forum who usually comes up with very helpful information. His name's Michael and he works for somewhere beginning with S... I think. Thanks Caz_770 ! Sorry been a bit slow with my replies here, last few weeks been quite busy with the super cheap fix rates! srl Wondering if any experts here could help us out? We are planning to renovate our home (currently valued by the bank at $700k). We owe about $340k on the home, so there's $360k in equity. Our intention is to maximise our equity redraw using a line of credit facility to the tune of $200k, then take the balance of the required monies as a construction loan. . Sorry to say your "USEABLE" equity at 90% LVR is only $290k ( Plus you will need to pay for ~$12k LMI) At 80% it's $220k with no LMI( def much better then 90% ) srl Total reno cost is somewhere between $400k-450k. We want to maximise the line of credit so that we can pay contractors directly and drive down the cost of the renovation. Using a construction loan, of course, means we need to pay the builder directly and incur the builder's mark-up. As a owners builder, you will looking more at a 70% LVR + they may want to control your funds with a cash out - ie they will pay your contractors directly Yes builders will mark up their cost...but i can't see any bank giving you $400k with no restriction for your purpose of owners builder anyway.... srl Our bank (CBA) has indicated it will only lend up to $100k for home renovations on the line of credit, and the balance we draw down is subject to a stamp duty charge. We understand from the loans officer at the bank that CBA is in general disinclined to lend too much against the line of credit, as historically loans of this type are frittered away on cars, holidays etc. Therefore, they refuse to loan anything more than $100k as a line of credit for home renovations, and levy the NSW Stamp Duty on the balance as a disincentive. Excuse my french but that's just BS! More like the lending staff have no idea how to say No...so it's best to blame it on governmental charges and "stamp duty" http://www.osr.nsw.gov.au/taxes/mortgage/ Please note there is a diff btw mortgage stamp duty and "purchase stamp duty"....in this case what the CBA staff is telling you is; you have to pay mortgage stamp duty over $100k which is BS...as the gov has abolish this tax as of 2007!! and it only applies for 1. Commercial property or commercial use ( unless CBA thinks your owners build is commercial ) srl We've been with the bank for around 15 years and don't really want to move away, but we're just wondering if there is a better way of structuring the loan, to give us flexibility to pay contractors directly and drive down the (frankly terrifying!) cost of the reno. Any advice would be greatly appreciated. It's great that your showing loyalty to your bank...but that will def not win you brownie points... Another banks .... 1. May think it;s worth more then 700k which will work to your advantage 2. Provide a better rate and deal 3. Better structure 4. Better cash out policy( or simpler) 5. Allow for less restriction 6. Def wont be charging you for the "mortgage stamp duty" Regards Michael Michael Chan | Australia wide Mortgage Broker Michael@ShapeHomeLoans.com.au | 1300 74 5626 | Fax: 02 8212 8909 http://www.ShapeHomeLoans.com.au Re: Renovation - line of credit vs construction loan 7Feb 11, 2012 10:19 am Michael, Thanks for your great advice. Yes, loyalty is not something banks value highly. The stamp duty is the piece which has really stuck in our throats. It felt like profiteering, and your advice confirms this is the case. We're not trying to exceed a $200k line of credit - we just don't want the bank to hit us up with fees for allowing us to access it. We're quite happy for the loan to be split $250k construction loan and $200k line of credit. (Certainly not interested in going beyond the 80% level and incurring mortgage insurance, that's for sure.) We spoke with a financial advisor yesterday about structuring loans and finances, and she advised us to check ANZ and Westpac. They were somewhat helpful, but not greatly different to CBA - certainly not enough to switch banks. Then we checked in with Bankwest, who seemed really helpful and willing to be quite a bit more flexible in their approach. (Funny, given they are owned by our current bank, CBA.) Indeed, the Bankwest advice seemed to reinforce that who you're speaking with at a finance provider is as important as the provider itself. The person we contacted seemed switched on, savvy and understood her products. As always, the best sales people understand their products inside-out. Again, Michael, thanks so much for your advice. I'm about to go and check out your web site! Renovating in Sydney, Australia. 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