If you own a property in Sydney or Melbourne, chances are, it’s increased in value considerably during the past couple of years. With your newly gained equity, you’re now a whole lot richer – at least on paper.
You will either need to sell it or take up a new loan to unlock the equity. By taking up a new loan against your property, you could use it to purchase an income producing asset and start building your property portfolio.
So, just to explain this easily:
Current property value: $600,000
Mortgage: $300,000
Equity gained: $600,000-$300,000= $300,000
In theory, you have $300,000 equity that you can access. But in reality, you can tap less than that.
That’s because the banks will only lend a portion of the property value – at many banks, this amount is 80%. So in this case:
80% of the property value: $600,000 x 0.8=$480,000
Mortgage: $300,000
Accessible equity: $480,000-$300,000 = $180,000
As you can see, it’s considerably lower than the theoretical amount, but this is still substantial amount. You could use this equity as a deposit for another property, provided you have the income to support it.
The reason we use the 0.8 or 80% amount is that anything taken over this would be subject to LMI (or Lenders Mortgage Insurance).
So how do you do this?
By booking a time to meet with a mortgage broker – we review your financial position, current home loan, the interest rates you are paying including bank fees. Then work out options for you and your situation. We may also recommend that you meet with a financial planner or adviser to obtain more investment advice.
If the right loan product is selected in the first place, then you will be assured that you are working to a long term plan. We often meet with clients who have been frantically paying off their home loan in lump sum payments, only to have them find if they are to buy another property and use their existing property as an investment, all of those extra payments should have been in an offset account to take advantage of tax benefits. It pays to plan and to set up the right product for you from the start.
For a complimentary Mortgage Makeover please book a time to talk to me – click here!