Property Investment 101: Using your own home’s equity ??????
If you own a home, you may have built up equity, which is the difference between your property’s current value and your mortgage balance. This equity can be a powerful tool for financing a rental property. However, banks typically require you to retain at least 20% of your property’s value, so you can’t use all of your equity. Working with a Mortgage Adviser is key to understanding how much of your equity can be leveraged and how to structure the process correctly.
When purchasing a rental property, you’ll need a significant deposit. Currently, banks require a 30% deposit for existing properties and 20% for new builds. The most common way to access equity for a rental deposit is by setting up a revolving credit facility, which acts like an overdraft, giving you quick access to funds.
For example, if your home is worth $1,000,000 and your mortgage is $600,000, you have $400,000 in equity. The bank might let you borrow up to 80% of your home’s value, or $800,000. After accounting for your current mortgage, you’d have $200,000 in "usable equity." This could cover the deposit for a rental property worth up to $700,000, allowing some extra for expenses like legal fees or inspections. It’s crucial to ensure you can service this additional borrowing, which is where a Mortgage Adviser can help.
Another important consideration is separating your properties across different lenders. If you have multiple properties with the same lender, selling one could lead to a reassessment of your entire portfolio based on the lender’s current criteria. This could result in higher repayment requirements, as the lender may demand a larger portion of the sale proceeds than originally expected. By using different lenders, you can reduce this risk and gain more flexibility as market conditions change.
Overall, financing a rental property requires careful planning and guidance. Leveraging your home’s equity, understanding deposit requirements, and selecting the right loan options are all crucial steps. With the right strategy and the support of a Mortgage Adviser, you can confidently grow your property portfolio and achieve long-term financial success. Don’t hesitate to reach out if you or anyone you know could benefit from a chat with us.
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Cheers,
Cam
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