November 13, 2013
Building a property portfolio remains a popular investment strategy for many Australians. This is particularly relevant at the moment as interest rates are at record lows, which means the cost of borrowing to buy property is the lowest it has been in a very long time.
However, there are many ‘mum and dad’ potential investors who question whether they can afford to purchase an additional property while continuing to repay their home loan. Using equity may provide a solution.
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? Depending on how long you have been making repayments and the capital growth accumulated since purchasing, you may be able to use your home equity to increase your personal wealth.
Of course, 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. This means you don’t have to come up with a cash deposit. Keep in mind 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.
So, it’s clever to consult a financial and tax adviser then visit a professional mortgage broker, who can help you compare finance options and find a lender and loan product suited to your circumstances.