Accessing the equity in your house can help you with your next major purchase.
Using the equity built up in your home can be a smart way to use your wealth to make a major purchase. If you are looking to buy a car, renovate your home, or buy an investment property you can use your home equity to make such a purchase.
Equity is very simply the difference between your home’s value and the amount you have outstanding on your mortgage. If you have a million-dollar home and owe $500,000 on the mortgage, then your equity is $500,000. People usually build equity in their home by paying down the initial mortgage and through rising home values over time.
Equity can be accessed for many different purposes: consolidation of credit cards, paying for a holiday, buying a car/boat/caravan, home improvements, or even to pay for a wedding.
Along with those purposes listed above, using equity to buy an investment property is a very popular way of using your accumulated wealth to invest and create more wealth.
Often when accessing equity to buy an investment property there is the opportunity to borrow enough that your out of pocket expenses with a property purchase are covered. This means that you don’t have to tap into your savings for things like stamp duty. You might also be able to balance out so that the rental returns cover your outgoings, creating passive income.
Typically, I would not recommend borrowing more than 80% of the property’s value, but there can be exceptions.
Things to consider:
You will need to be able to show that you can afford the repayments on the extra amount owing (and any investment loan if that is the loan purpose)
The lender will assess your situation and want to understand what the equity is to be used for, and will sometimes want to see proof
If you are using equity to purchase, for instance, a car, you should understand the cost differences between adding debt to your 25 year mortgage as opposed to taking out a six year car loan
There are a few simple steps to accessing home equity:
1. Work out how much equity you have.
This can be done simply by establishing the value of your home and subtracting the amount owing on the mortgage.
2. Calculate the equity you can realistically access.
You will need to be able to service the repayments on the extra loan amount and this will impact the amount of equity you can access.
3. Review the options available to you.
We can help you to research suitable lenders and products, comparing features, rates and costs to find the loan that best suits you.
4. Work out the costs and fees.
If you switch lenders there may be additional fees with government fees, application fees, and break costs on your existing loan.
5. Apply for the loan and proceeding to settlement.
We will work with you to apply for the loan and to see you through to settlement.
If you want to understand more about home equity and how is can be accessed, please speak to us. We would love to hear from you!