What is equity? Let me break this into simple terms. Equity refers to the current market value of your home minus the amount still owing on your home loan. Easy!
A recent valuation puts your home at being worth $650,000
Your home loan balance is sitting on $300,000
Your equity is $350,000.
Over time, as you pay down your home loan and if the value of your property grows, the equity in your home increases. Yeh!
Equity can be a valuable resource in helping you purchase an investment property as it can be used to secure finance.
By unlocking the equity in your home you can use that as security to purchase another property. At least 80% of that equity can be used as security to purchase another property. Or you could use it as a deposit for an investment property or two depending on how much equity you have.
It is possible to access some or all of the equity in your home without selling your the property. This is done by either borrowing against the equity and taking out an additional loan or by increasing the loan you currently have.
Your home will act as security for your investment property loan and that’s where borrowing against equity can be risky. If you don’t make the repayments, you could lose your home as a result.
Note: Equity does not equal serviceability. A lending institution will want to know you can service the loan not just have equity.
It’s essential that you before you consider investing in property that you do your due diligence . Confirm with your finance broker or bank prior to making any commitments, what your borrowing capacity would be.
As always, if you have any questions, leave a comment below.
Until next time,
From the desk of Christine.