October 13, 2014
So you have equity available in an existing property, whether it be the home you live in, or an investment property. How do you use this equity to help fund the purchase of another property? Daniel Meade, your mobile mortgage broker and home loan expert in Brisbane can help you unlock the secrets to unlocking your equity.
We all know it is important to repay the loan on your home as soon as you can. All the home loan experts and property investment gurus keep telling us that.
You might even understand that equity can be drawn down from your home to purchase an investment property, and then that equity becomes tax effective.
But do you understand that any remaining debt on your owner occupied home isn’t tax effective?
Let’s go back to basics: What is equity?
Equity in your home is the difference between the value of your property in the market, and the balance of your home loan or mortgage.
Equity is a valuable resource when it comes to property investment, and the good news is, all you really need to do to build it up, is own your home for a few years.
The first step in determining if you have any equity in your home, and how you might be able to use it to own an investment property, is to check with Kylie Taylor, your mobile mortgage choice broker servicing Brisbane.
Here’s an example of if you want to buy an investment property valued at $400,000.
First, add on your purchase costs (legal fees, stamp duty etc), of $20,000.
Total cost is therefore $420,000 to buy your investment property.
Now you’ve been to see Daniel Meade, your home loan expert in Brisbane, so you already know that you meet the loan approval requirements, and that a lender will fund you 80% of that $400K that the property has been valued at. (If you are willing to pay Lenders Mortgage Insurance (LMI), then you may be able to unlock more than the 80%, but we will get to that later).
This means the bank will lend you $320,000 to buy the investment property, and you need to come up with the remaining $100,000 for the deposit and other upfront expenses.
So where do you get the $100K?
Look no further than the equity in your home!
What is the equity in your home?
Let’s say its market value is $500,000.
The balance of your mortgage is $300,000.
Your equity, is the difference between the two, which is $200,000.
How much of your equity can you use?
As an investor, you can access up to 80% (so $160,000 in this case) without the need to take out LMI.
Instead of coming up with a cash deposit for the $100K you need to buy your investment property, you can take it from this $160k of accessible equity.
How do you work out YOUR equity, if it is different to this example:
Ideally, the available equity in your home is calculated at 80% of your home (without LMI), less any current loans.
So if your home is worth $550K, 80% of that is $440k. If you have a $300k loan still to pay, then take the loan amount from your 80% value to get your available equity: $440K- $300K = $140K equity.
Your home loan consultant will help you then go about accessing that equity in order to purchase a new investment property.
Alternatively, some lenders will lend up to 95% of the property value, less the existing mortgage. In these cases you will need to pay LMI on the amount borrowed over the 80%.
To read more on using a Mortgage Choice broker to access your equity, please read part 2 of this blog series:
Like watching videos rather than reading?
Mortgage Choice has helped us out by recording this explanatory video relating to how you can use equity to buy property. Click below to watch:
If you would like learn more about this topic, or about your home loan or financial advice options, contact Daniel Meade from Mortgage Choice today on:
Phone 07 3833 9666,
Or simply click on the contact us tab on this page.
If this information has been helpful to you or might be relevant to someone you know, please share it.
Daniel is looking forward to helping you unlock your equity very soon.
This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances.