Make your home work harder for you

August 09, 2014
David Thomas

Building a property portfolio remains a popular investment strategy for many Australians, especially at the moment given interest rates are currently hovering around record lows.


But while many would no doubt love to build an investment portfolio, the majority are probably wondering whether or not they can afford to do so. 


If you own your own home and have paid off some of the mortgage, you may be surprised to find out that you are in a position to kick-start your property investment portfolio.


Often, people who have paid off all or part of their home borrow against the equity they have built up over time - the difference between a home's market value and the unpaid balance of the home loan - to finance the deposit for an investment property purchase.


A family home is the biggest financial commitment, and asset, many Australians will ever have. So why not put it to work while you work on paying it off?


Of course, before you start using the equity you have built up in your owner occupied property to create an investment property portfolio, there are a few things you need to do, namely:


Determine how much equity you have in your property: Depending on how long you have been making repayments and the capital growth accumulated since purchasing your property, you may be able to use your home equity, rather than cash, as a deposit for an investment property. A local real estate agent or mortgage broker could help to arrange an estimated market valuation report of your property as a guide.


Work out how much you can afford: How much you can borrow is subject to lenders’ serviceability criteria as well as the amount of available equity, which works as security for the investment loan. Keep in mind that if you intend to borrow more than 80% of the total property value, ie. that of your home plus the investment property, you will probably be required to pay lenders mortgage insurance, which can be quite costly.


It is important to note this strategy does require you to take on a certain amount of risk. Before accessing your equity it is necessary to establish whether you can comfortably afford higher loan repayments and which, if any, lender is willing to lend to you.


Get the right advice: Before you do anything, it’s a good idea to consult a financial and tax adviser then visit a professional mortgage broker as they can help you compare finance options and find a lender and loan product that is ideally suited to your circumstances.


For further information, and to put yourself in the best position with valuable information and guidance, contact a trusted consultant from Mortgage Choice on 07 3286 7711. 

Posted in: Financial planning

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