Many homeowners believe that they have to pay off their current property before they can move onto buying the next one. The truth is you don’t always have to wait years or even decades until you can make your next property purchase. There are many lending options available to help you start adding more property to your portfolio. Tapping into equity is one of the most popular methods Australians have been using to purchase more property. This method is very effective for adding to your property portfolio.
What is equity?
Your equity is essentially the difference between the current value of your home and how much you still owe on it. For example, if your current property is worth $700,000 and you still owe $500, 000 on the loan, your equity will be $200,000.
What can I use my equity for?
Your equity can be used as security with your bank. So you will be able to borrow against your equity to fund a big purchase such as:
How much will I be able to borrow?
A bank or lender will never let you lend money against the value of your home. So if your property is worth $700,000, your bank will never lend that entire amount to you.
Most banks and other lenders will be willing to lend you up to 80% of the value of your current home – excluding the debt you still owe against it. This amount is referred to as your useable equity
In some cases, you may be able to borrow more than 80%. But in order to borrow more, you may have to take out Lender’s Mortgage Insurance.
What can I use my equity for?
Your equity is based on the value of your property and how much is left owing. But there are ways you can build up your equity faster. Carrying out a cosmetic renovation for your come can quickly improve its value and therefore the equity in your home. You don’t have to do anything too drastic for a cosmetic renovation. A new coat of paint, a kitchen or bathroom makeover are all simple solutions for improving the value of your home.
Another effective method for building up your equity fast is to make extra repayments to your mortgage. You may currently have monthly mortgage repayments that you’re staying on top of. However, if you’re financially stable enough to contribute more, then don’t hesitate! The more you pay, the more equity you’re building up for your property.
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What are the risks involved in accessing my equity?
While there are many advantages to using your equity, there are still risks involved. You could risk losing your home and investment property if you don’t use your equity properly.
Tips to safeguard your equity strategy:
Have a financial buffer in place: If you don’t have spare funds other than the equity in your home, then don’t risk it all by using your equity to invest in property. You should always have spare money put aside so you never have to borrow in the case of an emergency.
Prioritise your current home loan: Focus on paying off your home loan as much you can before focusing on investment properties. That way you’ll have access to more equity when you need it.
Learn more about property investment: Property investment can have a dramatic influence on your quality of life now and further down the track. Learn more about the area you’re buying an investment property in and make sure it’s a viable investment option with the potential for growth.
Ask a professional: Never be afraid to seek advice from a professional in the real estate industry. No matter what phase of life you’re up to right now, a Mortgage Broker can give you solid advice on your property investment potential now and what you can do to improve your financial position in the future.
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Frequently asked questions
A Mortgage Broker acts as a middleman between the borrower and the lender/bank. They will take the time to assess your financial situation by collecting all the relevant paperwork. After an initial assessment, they provide their recommendations for the best lenders available. These recommendations are based on your financial situation, purchasing power, and future investment goals. Long-term goals for paying off your loan should all be taken into consideration.
You should first get in touch with a Mortgage Broker before you start looking for new property to buy. A Mortgage Broker will assess your financial situation and evaluate your purchasing power. When you know how much you can spend on a loan, it makes it a lot easier not to go over budget and spend beyond your means.
Yes, we can. Our staff can arrange a time and meeting location appropriate for you. We are not limited by standard business hours.
Our staff are available for appointments 7 days a week. Our aim is to fit around your busy work schedule so there’s no need to arrange for time off work. We can come to your house 7 days a week when it’s convenient for you.
We will not charge you a fee for our service. Sprint Finance is paid a commission by the lender you choose. Details of this commission will be fully disclosed to you when you first get in touch with our service. Government and lender fees and charges will apply to your home loan. We will take the time to explain these fees and charges to you in greater detail if you need us to.