June 20, 2014
If you’re considering purchasing an investment property; understand how you can use your homes equity towards your next purchase.
What is home equity?
The value of your property less the amount owing on your home loan is considered passive equity. For example if your mortgage is $600,000 and you owe $400,000 the passive equity that you have on your home is $200,000.
Every time you make additional repayments to your home loan you can expedite the accrual of passive equity which can then be utilised for future investment. It is important to note that you cannot use all of your passive equity to invest. You must leave sufficient equity in your existing property to keep in line with your banks specific policies.
Using your home equity
Don’t let your equity sit there untouched, grow your assets and consider purchasing an investment property. When using your passive equity to purchase an investment property it is ideal to cover all associated costs with the purchase. It is important to note that loan you draw against your home for the deposit could be tax deductible. You will need to seek the advice of an independent accountant regarding this.
What to consider
To start the process you will usually need to review your existing home loan to access your equity.
- Valuation - Even though you have calculated the value of your home the lender will need to request a licensed valuation report. Mortgage Choice Bundall can arrange for this to be done at no cost to you.
- Borrowing Capacity – Meet with your mortgage broker to discuss what you can afford and the approximate repayments associated with holding the investment property.
- Taxation Strategy – Investment in property may provide tax benefits which are dependent on your individual circumstances. Positive vs Negative gearing, High Rental Yield v Capital Growth all need to be considered.
- Capital Growth – Investment is the action or process of investing money for profit or material result. If this investment is in property this must be your primary goal.
If you are interested in using your equity to purchase an investment property let Mortgage Choice Bundall review your current home loan and help build your wealth. Call Mortgage Choice Bundall, Gold Coast today 07 5504 5569 or email firstname.lastname@example.org to book your free appointment with our mortgage broker.
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