Equity and Leverage - what are they and how can they help me?

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Equity and Leverage - what are they and how can they help me?

 What is equity? That takes me back to my university days and Accounting 101 (which is longer ago than I care to admit).  I can still see my lecturer & that equation on the board.

 Assets = Liabilities + Owners Equity.

 As I never intended to be an accountant, I never thought I’d actually use that in life - but here I am. 

 Essentially, equity is the bit of your house that you actually own – or to put it another way – the value of your property minus the outstanding debt on the property.

As a simple example, if you had a $1,000,000 property and owed $600,000 on the mortgage – your equity would be $400,000. 

So how can I help me? Leverage!

Using the above example, you could use your existing equity to buy an investment property for $650K with no cash deposit.

 At a simplistic level, here’s the math:

 Property values:             Debt:                           Equity:

$1,000,000                  $600,000                    $400,000

$650,000                     $650,000                    $           0  

$1,650,000                  $1,250,000                  $400,000

 This would leave you with an LVR (Loan to value ratio) of 75.75%.

Below the magic 80% mark, and therefore no LMI (Lenders Mortgage Insurance.)

Call us and make a no obligation appointment to come & chat about whether this is possible for you.  Call Hugh on 0429-010-146 or Robert 0411-555-315.

 

Posted in: Home loans

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