Are you watching others around you build their property portfolios and wondering, how do they do it?
Put simply, if you own a property and it has increased in value, the amount of equity held in that property will have gone up too. The equity that you have in your existing home can be used to help you purchase an investment property. Equity refers to the difference between the value of your home and the amount that you still owe on it.
For example, if your home is worth $500,000 and you owe $300,000 on your mortgage, your total equity is $200,000.
If you are buying an investment property, you can access $100,000 of equity without paying Lenders Mortgage Insurance (LMI) or up to $140,000 at a really low LMI in the above example as security, which eliminates the need for a deposit. This is your useable equity.
Why use home equity to buy my investment property?
1. No need to save a deposit
If you’ve paid off some of your loan, or the value of your property has gone up, you could have a fair bit of home equity. Rather than put yourself under the added financial burden of saving for another deposit, you can make use of this money that’s ‘sitting in your home’.
2. Save on Lender’s Mortgage Insurance (LMI)
Lenders will usually charge LMI if your deposit is less than 20% of the property value. As an investor you can access up to 80% of your home equity. This may cover part, or all, of that deposit amount. So you’ll pay less or no insurance, saving you thousands.
3. Get tax deductions
The interest you pay on investment property loans is tax deductible. So if you already have a home loan, it’s often best to borrow the full value of the investment property with an interest-only loan.
Remember that equity can be used for a number of different things. You may want to consider tapping into your equity to fund renovations, new builds or even fund your retirement rather than using it to jump into another property.
How, when and if you grow your portfolio is ultimately up to you as an investor.
If you would like to know more about accessing equity, please contact us for a FREE no obligation consultation on 0427 918 232 or email daks@wholisticfinance.com.au or visit our website https://www.wholisticfinance.com.au/
