If you already own a home, one of its most powerful financial advantages is the equity you have built up over time. As your property value grows and your mortgage balance reduces over time , the difference between the two, the equity built can be used to fund your next move.
One of the most popular ways Australians use their home equity is to purchase an investment property, giving you a way to grow your wealth without needing a separate cash deposit. Accessing your equity is not as simple as withdrawing cash from a savings account, so here are the five key steps to understanding, unlocking, and using your home’s equity to invest in property.
Step 1: Estimate Your Property’s Current Value
Start by finding out how much your property is worth today. This can be done through comparable recent sales, a professional valuation, or a free property report from your mortgage broker. Understanding the market value is the first step in calculating your usable equity.
Step 2: Work Out Your Accessible Equity
Your equity is the difference between your home’s current value and the balance remaining on your mortgage. However, lenders typically allow you to access up to 80% of your home’s value, minus your current loan. This is your “accessible equity.” Borrowing above this threshold may trigger Lenders Mortgage Insurance (LMI), even if you have paid it before.
Step 3: Assess Your Borrowing Capacity
Accessible equity is just part of the equation. You will also need to prove you can afford the higher repayments on a larger loan. A mortgage broker can help you crunch the numbers and understand how much you can comfortably borrow without putting strain on your finances.
Step 4: Review Your Loan Options and Consider Refinancing
This is a great time to explore your mortgage options. You may need to refinance your current loan or take out a separate investment loan. Keep in mind that investment loans typically have higher interest rates, but the interest (and some property costs) may be tax deductible. Your broker can help you compare loan features, interest rates, and any switching costs.
Step 5: Apply and Settle on Your Investment Property
Once you have crunched the numbers, selected a suitable loan, and found the right property, your broker will help lodge the application and manage the process through to settlement. They will guide you through all the paperwork, lender requirements, and negotiations, so you can focus on finding the right investment.
Talk to a Mortgage Broker
A mortgage broker compares loans from 30+ lenders on your behalf - not just the four major banks. We can assist with every step of this process, from arranging a professional valuation and maximising your borrowing capacity, through to finalising the right loan structure at competitive rates. Our service is free - we are paid a commission by the lender, not by you.
Ready to put your equity to work? Book a free consultation with Dhaniro Mortgage Solutions and we will walk you through your options, borrowing capacity, and the best loan structure for your situation - at no cost to you. Book a call or phone us on 0451 473 343.