Unlocking your equity for profitable property investments
January 29, 2014 / Written by Rich Harvey
Buying a home is often described as investing in an asset, and in most cases, this is referring to equity.
This is the difference between how much your home is worth and the amount of money you still owe toward it. If you buy a house in Australia, you will build up equity as you pay it off.
You can then tap into this equity by taking out a loan using your home as collateral. This is typically accomplished by refinancing your original home loan.
There are plenty of reasons to refinance in order to access home equity, with some of the most common reasons being paying for a child's schooling, making renovations or simply paying off large, unexpected bills.
However, equity can also be the perfect source of funding for property investment in Australia.
Advantages of utilising home equity
While many property investors are forced to take out brand new loans that can feature higher than average interest rates, home equity loans typically feature lower interest rates because the loan is secured by your home. Less risk for lenders means lower costs for you.
Additionally, this interest can often be tax deductible, offering yet another financial benefit to using home equity to invest.
Most importantly, investing with home equity puts the wealth you've built to work for you. All too many homeowners simply let their equity sit still instead of taking advantage of it and reaping the rewards. And with the right loan structure and using and offset account you can pay off your home loan at a faster rate.
Disadvantages of utilising home equity
No investment strategy comes without risks, and home equity is no different.
Perhaps the biggest risk of unlocking home equity for property investment is that if you default on your loan, the lender has recourse to sell your home in order to pay it off. In short, failing to repay your home equity loan means running the risk of losing your house completely.
However, using a professional buyers’ agent to help you find top performing investment property means you can eliminate the risk of buying a lemon. Your home equity can help you buy a portfolio of properties that sets you on the pathway to increasing wealth!
Next steps to unlock equity
A good mortgage broker will examine your financial position and help you accurately identify your true equity position and borrowing capacity.
A savvy broker that understands your goals can work with you to find the best lenders and set up a strategy to buy multiple properties. If you don’t have a mortgage broker, just call us on 1300 655 615 or email us to ask for a recommendation. Having been in the investment game for over a decade we know the best mortgage brokers in the business.